Niagara Mohawk Power Corporation PROCEEDING … · Niagara Mohawk Power Corporation ... Book 2...
Transcript of Niagara Mohawk Power Corporation PROCEEDING … · Niagara Mohawk Power Corporation ... Book 2...
Niagara Mohawk Power Corporation d/b/a National Grid PROCEEDING ON MOTION OF THE COMMISSION AS TO THE RATES, CHARGES, RULES AND REGULATIONS OF NIAGARA MOHAWK POWER CORPORATION FOR ELECTRIC AND GAS SERVICE
Testimony and Exhibits of:
Mustally A. Hussain Human Resources Panel
Book 2
April 2012
Submitted to: New York State Public Service Commission Case 12-E-____ Case 12-G-____
Submitted by: Niagara Mohawk Power Corporation
T
estimony of
M
ustally Hussain
Before The Public Service Commission
NIAGARA MOHAWK POWER CORPORATION D/B/A NATIONAL GRID
Direct Testimony
Of
Mustally A. Hussain
1
Testimony of Mustally A. Hussain
Page 1 of 26
Q. Please state your name and business address. 1
A. My name is Mustally A. Hussain. My business address is One MetroTech 2
Center, Brooklyn, New York 11201. 3
4
Q. By whom are you employed and in what capacity? 5
A. I am employed by National Grid Corporate Services LLC, a subsidiary of 6
National Grid USA (“National Grid”) as the Director of Integrated 7
Analytics in the Regulation and Pricing Organization. 8
9
Q. Please describe your educational and professional background. 10
A. I received a Bachelor of Arts degree in Economics and Mathematics from 11
Grinnell College and graduated with an MBA in Finance from the MIT 12
Sloan School of Management. I worked at Analysis Group, an economic 13
and financial litigation consulting company for several years where I 14
provided economic and corporate finance advice and analysis to several 15
large corporations, including power and energy companies. In 2007, I 16
joined Citigroup’s Power and Utilities Investment Banking Group, where I 17
advised U.S. utilities and power corporations on mergers & acquisitions, 18
financings, and optimal capital structure decisions. I joined National Grid 19
in early 2010 as a Director of Cost of Capital in its Regulation & Pricing 20
Department. In 2011, my responsibilities were expanded to include 21
2
Testimony of Mustally A. Hussain
Page 2 of 26
directing economic and financial analysis and providing input into 1
regulatory strategy development, cost of capital and capital structure 2
matters. In my current position, I am familiar with the financing activities 3
of Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara 4
Mohawk” or the “Company”). 5
6
Q. What is the purpose of your testimony? 7
A. In support of Niagara Mohawk’s April 2012 electric and gas base rate 8
filings, the purpose of my testimony is to present the Company’s proposed 9
capital structure and overall cost of capital in this proceeding. My 10
testimony provides information for both the Historic Test Year ended 11
December 31, 2011 and the forecast year ending March 31, 2014 (“Rate 12
Year”) and years ending March 31, 2015 (“Data Year 1”) and March 31, 13
2016 (“Data Year 2”) (collectively “Data Years”). All forecasts have been 14
developed from the Historic Test Year. Also, because of the continuing 15
turmoil in the debt auction markets, I am recommending that a variable-16
rate debt true-up mechanism that was previously approved in Case 08-G-17
0609 (“2008 Gas Rate Case”) and Case 10-E-0050 (“2010 Electric Rate 18
Case”) be continued for variable-rate debt interest expense and associated 19
fees. 20
21
3
Testimony of Mustally A. Hussain
Page 3 of 26
Q. Do you sponsor any exhibits as part of your testimony in this 1
proceeding? 2
A. Yes. I sponsor the following exhibits, which were prepared or compiled 3
under my supervision and direction: (i) Exhibit __ (MAH-1), entitled 4
“Niagara Mohawk Power Corporation – Capital Structure And Weighted 5
Average Cost Of Capital;” Exhibit __ (MAH-2), which are the workpapers 6
supporting Exhibit __ (MAH-1); and (iii) Exhibit __ (MAH-3), which 7
consists of the most recent evaluations of Niagara Mohawk by Standard & 8
Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”) and reports 9
from S&P and Moody’s that describe the rating methodologies used by 10
these agencies. 11
12
Q. Please describe Exhibit __ (MAH-1). 13
A. Schedule 1 of Exhibit __ (MAH-1) sets forth Niagara Mohawk’s historic 14
cost of long-term debt and preferred stock. Schedule 2 contains the 15
projected capitalization and weighted average cost of capital that is 16
proposed to be adopted for Niagara Mohawk in this proceeding. Schedule 17
3 sets forth a forecast Sources and Uses of Funds statement and projected 18
financial statistics for the Rate Year and Data Years. Workpapers 19
supporting this Exhibit have been provided as Exhibit __ (MAH-2). 20
21
4
Testimony of Mustally A. Hussain
Page 4 of 26
Q. What is the weighted average cost of capital that you are proposing be 1
adopted for Niagara Mohawk for the Rate Year in this proceeding? 2
A. The Company’s proposal in this case is to establish rates for fiscal year 3
2014 – the twelve months ending March 31, 2014. For additional 4
consideration, the Company has also provided data for the fiscal years 5
ending March 31, 2015 and 2016, respectively. The Weighted Average 6
Cost of Capital that I am proposing, as shown on Schedule 2, Page 5 of 7
Exhibit __ (MAH-1) is 7.38% for the Rate Year. This overall rate of 8
return is based on the following capitalization ratios and cost rates: 9
Capitalization Ratio
Cost Rate
Weighted Cost
Long-Term Debt 46.4% 4.14% 1.92%Short-Term Debt 1.0% 0.84% 0.01%Customer Deposits 0.7% 1.65% 0.01%Preferred Stock 0.6% 3.66% 0.02%Common Equity 51.4% 10.55% 5.42%
Total 100.0% 7.38%
If rates were to be established for three years in a settlement in this 10
proceeding, I propose the following overall rates of return below, which 11
include a three-year stayout premium on ROE, as shown on Schedule 2, 12
Pages 6-8 of Exhibit __ (MAH-1). 13
FY 2014 FY 2015 FY 2016Capitalization
RatioCost Rate
Weighted Cost
Capitalization Ratio
Cost Rate
Weighted Cost
Capitalization Ratio
Cost Rate
Weighted Cost
Long-Term Debt 46.4% 4.14% 1.92% 46.0% 4.57% 2.11% 45.4% 5.35% 2.43%Short-Term Debt 1.0% 0.84% 0.01% 0.8% 1.22% 0.01% 2.2% 2.40% 0.05%Customer Deposits 0.7% 1.65% 0.01% 0.7% 1.65% 0.01% 0.6% 1.65% 0.01%Preferred Stock 0.6% 3.66% 0.02% 0.5% 3.66% 0.02% 0.5% 3.66% 0.02%Common Equity 51.4% 10.90% 5.60% 51.9% 10.90% 5.66% 51.3% 10.90% 5.60%
Total 100.0% 7.56% 100.0% 7.81% 100.0% 8.11%
5
Testimony of Mustally A. Hussain
Page 5 of 26
In calculating the capitalization ratios shown above, all of the goodwill 1
recorded on Niagara Mohawk’s books was excluded from the Company’s 2
total capitalization and common equity balances. 3
4
Q. How did you determine Niagara Mohawk’s capitalization ratios? 5
A. Niagara Mohawk’s weighted average cost of capital for the Rate Year and 6
the additional Data Years reflects a capital structure comprising 51% 7
common equity exclusive of goodwill. This approximates Niagara 8
Mohawk’s current capital structure and is the targeted structure that the 9
Company plans on maintaining going forward to minimize its overall cost 10
of capital, maintain the Company’s current “A” range credit/bond ratings, 11
and provide it with ready access to the financial markets at a reasonable 12
cost. 13
14
Q. Please describe the corporate structure of Niagara Mohawk. 15
A. Niagara Mohawk is owned by Niagara Mohawk Holdings, Inc. (“NMHI”), 16
incorporated in New York. NMHI is owned by National Grid, a 17
Massachusetts corporation, which is ultimately owned by National Grid 18
plc. Niagara Mohawk’s ultimate parent is National Grid plc. 19
20
6
Testimony of Mustally A. Hussain
Page 6 of 26
Q. Has the Company modified its capital structure since its acquisition 1
by National Grid plc in 2002? 2
A. Yes. Since its acquisition by National Grid plc in 2002, the Company’s 3
common equity ratio exclusive of goodwill has increased from 4
approximately 25% at the end of the first quarter immediately following 5
the transaction to more than 51% in 2007. This significant achievement 6
was accomplished by using the vast majority of the Company’s cash 7
earnings and other sources of internally generated cash to increase the 8
Company’s common equity balance, pay down debt and fund construction 9
expenditures. The average equity ratio has remained at or above 51% 10
since 2007. 11
12
Q. Has the improvement in the Company’s capital structure since its 13
acquisition by National Grid plc improved Niagara Mohawk’s credit 14
ratings? 15
A. Yes. The steady and continuing reduction in the Company’s leverage that 16
has occurred since its acquisition by National Grid plc has been one of the 17
key factors that has prompted Moody’s to upgrade Niagara Mohawk’s 18
corporate credit rating twice; from Baa3 prior to the acquisition to Baa1 in 19
October 2004, and from Baa1 to A3 in November 2007. In its February 1, 20
2008 Credit Opinion on the Company, Moody’s stated that the significant 21
7
Testimony of Mustally A. Hussain
Page 7 of 26
reduction in Niagara Mohawk’s debt levels and the corresponding 1
favorable improvements in key credit metrics that resulted were major 2
factors in its decision to upgrade the Company’s credit rating from Baa1 to 3
A3 in November 2007. In a Credit Opinion on the Company issued on 4
July 22, 2009, Moody’s points out that the Company’s use of its free cash 5
flow to significantly reduce its debt level over the last several years 6
contributed to corresponding favorable improvements in key credit 7
metrics. Moody’s also states in this Opinion that they view the financial 8
protections put in place at Niagara Mohawk as a “credit positive.” The 9
Company intends to maintain its ‘A’ credit rating to minimize funding 10
costs. 11
12
Q. During the period in which the Company has improved its credit 13
metrics, was it operating under a series of financial protections? 14
A. Yes, when it was acquired by National Grid plc in 2002, the Company 15
agreed to a number of financial protections that were adopted by the 16
Commission when it approved the Merger Joint Proposal in Case 01-M-17
0075. These protections were designed to financially insulate or “ring 18
fence” Niagara Mohawk from National Grid plc and its other affiliates. 19
Except for its participation as a borrower or lender in a corporate money 20
pool, these protections prohibit the Company from providing any financial 21
8
Testimony of Mustally A. Hussain
Page 8 of 26
assistance to its affiliates through loans, loan guarantees, letters of credit 1
or other commitments, as well as using its assets to collateralize affiliate 2
debt. In approving the subsequent merger between National Grid plc and 3
KeySpan, the Commission ordered that the Company adopt additional 4
protections to further insulate it from National Grid plc and its affiliates. 5
One of these protections is that there can be no cross-default provisions 6
that would require Niagara Mohawk to indemnify any lender, supplier or 7
other counter-party for or as a result of a default of any affiliate. Also, if 8
any cross-default provisions currently exist that cannot be eliminated, 9
National Grid plc is required to obtain indemnification from an investment 10
grade entity that fully protects Niagara Mohawk from the effects of such 11
existing cross-default provisions, the cost of which will not be borne by 12
customers. In addition, as directed by the Commission, the Company has 13
modified its certificate of incorporation to establish a “golden share” 14
intended to prevent a bankruptcy of National Grid plc, National Grid or 15
any affiliate from automatically triggering a bankruptcy of Niagara 16
Mohawk without the approval of the holder of the golden share, a trustee 17
charged with acting in accordance with the best interests of New York. 18
The protections also prohibit the Company from paying common 19
dividends without Commission approval if its or National Grid plc’s bond 20
rating on their least secure form of debt falls below investment grade as 21
9
Testimony of Mustally A. Hussain
Page 9 of 26
determined by one or more U.S. nationally recognized rating agencies, or 1
either entity’s bond rating falls to the lowest investment grade rating and is 2
on negative watch or review for a further downgrade. Finally, no debt 3
associated with the KeySpan merger may be reflected as an obligation of 4
Niagara Mohawk on its regulatory or US GAAP books and records. 5
Niagara Mohawk also has pending before the Commission certain Rate 6
Plan Provisions (filed January 31, 2012 in Case 10-E-0050) in which it has 7
agreed that the Company would be prohibited from paying dividends if its 8
average total debt exceeds 57% for both the most recent three- and six-9
month periods until the average total debt is reduced to 55% or less over 10
the most recent six months ending at the end of a quarter. 11
12
Q. Since the acquisition by National Grid, plc has Niagara Mohawk’s 13
credit rating from Standard & Poor’s (“S&P”) also improved? 14
A. Yes. Just prior to the acquisition, Niagara Mohawk’s credit rating from 15
S&P was BBB. Today, it is A-. 16
17
Q. Is the maintenance of a low “A” credit rating consistent with the 18
results of the “Generic Financing Proceeding” that is often referred to 19
by the Commission in determining the cost of capital for utilities in 20
New York? 21
10
Testimony of Mustally A. Hussain
Page 10 of 26
A. Yes. What is referred to as the “Generic Financing Proceeding” – Case 1
91-M-0509 – resulted in a 1994 Recommended Decision that, although 2
never formally adopted by the Commission, has often been referenced to 3
by the Commission when determining the cost of capital to be used in 4
setting rates. In that proceeding, the electric and gas group, which 5
included utilities, Staff, the Consumer Protection Board and Multiple 6
Intervenors, agreed that while a “BBB” rating was most often the least 7
costly on a purely quantitative basis, the cost of a slip from “BBB” to 8
“BB” was substantial, while the increased cost of achieving an “A” rating 9
was only slightly greater than that of a “BBB” rating. Thus, the group 10
concluded that the “A” rating goal was the more cost effective when 11
qualitative factors were added to the equation. The recommended 12
decision in the “Generic Financing Proceeding” proposed that the “A” 13
rating should continue to be the long-term target for utilities and that the 14
Commission continue to offer utilities ratemaking support for an “A” 15
rating. 16
17
Q. Is there evidence that supports the use of the Company’s proposed 18
capital structure for the purposes of setting electric and gas rates in 19
this proceeding? 20
11
Testimony of Mustally A. Hussain
Page 11 of 26
A. Yes. Exhibit __ (MAH-3) sets forth the most recent evaluations of Niagara 1
Mohawk by S&P and Moody’s. These evaluations reflect higher 2
unsecured debt ratings for Niagara Mohawk than National Grid plc. To 3
maintain these higher ratings, Niagara Mohawk’s rates should be 4
established using its standalone capital structure. 5
6
Q. What are Niagara Mohawk’s unsecured debt ratings as compared to 7
National Grid plc’s? 8
A. The Company’s senior unsecured debt ratings assigned to it by Moody’s 9
and S&P are both one notch higher than those assigned to National Grid 10
plc. The Company’s senior unsecured debt is currently rated A3 by 11
Moody’s and A- by S&P whereas National Grid plc’s ratings are Baa1 and 12
BBB+, respectively. Also, the issuer rating assigned to the Company by 13
Moody’s is one notch higher than that assigned to National Grid plc. The 14
current issuer ratings of Niagara Mohawk and National Grid plc are A3 15
and Baa1, respectively. The Company’s standalone credit strength, which 16
has contributed to its higher credit ratings compared to National Grid plc, 17
has provided significant benefits to customers in terms of lower financing 18
costs. 19
20
12
Testimony of Mustally A. Hussain
Page 12 of 26
Q. Have customers benefited from the Company’s higher senior 1
unsecured debt ratings compared to those of National Grid plc? 2
A. Yes. In the summer of 2009, the Company issued a total of $1.25 billion 3
of new long-term debt in two tranches: $750 million of 10-year debt and 4
$500 million of 5-year debt. The Company’s higher credit ratings 5
resulting from its stronger credit profile (its higher equity ratio and the 6
financial protections described above), coupled with the fact that the $1.25 7
billion of new debt was issued by Niagara Mohawk and thus placed 8
closest to the assets it was funding, resulted in a lower cost to customers 9
than would have been the case if National Grid plc had issued comparable 10
debt. Based on interest rate spreads at the time of issuance, had National 11
Grid plc issued the $750 million of 10-year debt instead of Niagara 12
Mohawk, it is estimated that the interest rate on this debt would have been 13
about 66 basis points higher. Similarly, the interest rate on the $500 14
million of 5-year debt issued by the Company would have been about 33 15
basis points higher had it been issued by National Grid plc. Thus, by 16
having the Company issue the $1.25 billion of new debt, customers will 17
save an estimated total of $57.8 million in interest expense over the lives 18
of the debt compared to its issuance by National Grid plc. This cost 19
differential is a clear benefit of the financial separation between the 20
Company and National Grid plc. This benefit justifies the use of the 21
13
Testimony of Mustally A. Hussain
Page 13 of 26
Company’s standalone capital structure for ratemaking purposes in this 1
proceeding. 2
3
Q. Under certain circumstances, the Commission has used the capital 4
structure of the ultimate parent company in determining the overall 5
cost of capital for utilities under its jurisdiction that are owned by 6
holding companies. Do you believe it is appropriate for the 7
Commission to use National Grid plc’s capital structure to set rates 8
for Niagara Mohawk in this proceeding? 9
A. No, I do not. Niagara Mohawk finances its rate base on a standalone 10
basis, is separately rated by the rating agencies and issues its own long-11
term debt to support its long-term duration assets. The capital structure of 12
Niagara Mohawk is not tied directly to that of National Grid plc. National 13
Grid plc’s capital structure has been significantly affected by several 14
recent transactions that have had no impact on the Company’s standalone 15
capital structure. These transactions included the National Grid 16
plc/KeySpan merger that was consummated in August 2007, the sale of 17
National Grid plc’s wireless communications business that was completed 18
in April 2007, the sale of the Ravenswood generating station that was 19
completed in the summer of 2008 and, finally, a £3.2 billion rights issue in 20
2010. National Grid plc’s US GAAP capital structure is influenced by a 21
14
Testimony of Mustally A. Hussain
Page 14 of 26
variety of factors, including the nature of National Grid plc’s international 1
businesses and changes in foreign exchange rates that have nothing to do 2
with Niagara Mohawk or its standing in the financial community. 3
4
In addition, the financial community recognizes that there is financial 5
separation between National Grid plc and Niagara Mohawk not just 6
because of the separate credit rating but also because of the financial 7
protections agreed to by the Company. The financial protections that were 8
adopted by the Commission when it approved the National Grid 9
plc/KeySpan merger prohibit the pushdown or assignment of 10
responsibility of any merger-related debt to the Company. It would be 11
inappropriate for the Commission to reflect any impact of parent company 12
transactions in the Company’s revenue requirements through the 13
imputation of the parent company’s capital structure when it cannot be 14
demonstrated that these transactions have any bearing on the Company. It 15
is Niagara Mohawk’s understanding that in establishing the proper capital 16
structure for ratemaking purposes, the Commission seeks to determine the 17
amount of debt and equity capital that the Company is dedicating to public 18
service to be assured that customers are paying only the costs to support 19
regulated operations. The capital structure proposed here is one that will 20
ensure that Niagara Mohawk’s customers receive the benefits of the 21
15
Testimony of Mustally A. Hussain
Page 15 of 26
Company’s improved financial profile and pay rates that reflect the capital 1
actually being used to support Niagara Mohawk’s regulated operations. 2
3
Q. If the Commission wishes to consider whether to use National Grid 4
plc’s capital structure to set rates in this proceeding, how should the 5
equity component of its capital structure be determined? 6
A. As discussed throughout this testimony, there are many sound reasons 7
why Niagara Mohawk’s standalone capital structure should be used for 8
ratemaking purposes in this proceeding. However, if the Commission 9
wishes to consider using National Grid plc’s capital structure, there are a 10
number of differences between National Grid plc and Niagara Mohawk 11
that must be recognized. First, differences in the methodology used to set 12
rates for National Grid plc’s regulated businesses in the United Kingdom 13
(“UK”) compared to that used in New York make it inappropriate to use 14
National Grid plc’s capital structure as determined in accordance with US 15
GAAP to establish the Company’s revenue requirements in this 16
proceeding. National Grid plc’s US GAAP capital structure had a 44.6% 17
equity component as of March 31, 2011. However, the regulator of 18
National Grid plc’s UK businesses does not utilize the level of capital 19
represented in National Grid plc’s US GAAP accounts when setting rates. 20
These accounts, in turn, do not reflect the value of the UK businesses on 21
16
Testimony of Mustally A. Hussain
Page 16 of 26
which the UK regulator allows National Grid plc to earn a return. In the 1
UK, rates are set based on a Regulatory Asset Value (“RAV”), rather than 2
a rate base based on book value per US GAAP. RAV has no direct 3
relationship to the book value of these businesses and was initially derived 4
from a combination of replacement cost and market value. In addition, 5
under the UK regulatory framework, the RAV is increased by inflation 6
every year. Thus, the equity component as determined in accordance with 7
US GAAP must be adjusted to recognize the difference between the RAV 8
and the US GAAP book value of the UK regulated businesses. This is 9
necessary to ensure that National Grid plc’s consolidated capital structure 10
reflects the regulatory value of assets in both the US and UK on an equal 11
and consistent basis. The UK to US regulatory adjustment, along with the 12
substantial increase in equity following the National Grid plc rights issue 13
in 2010, results in a 51.1% equity ratio at National Grid plc. 14
15
Q. Are there any other factors that affect National Grid plc’s capital 16
structure that need to be taken into account? 17
A. Yes. Changes in currency exchange rates that are beyond the control of 18
the Company and National Grid plc can have a significant impact on 19
National Grid plc’s capital structure and thus its capitalization ratios as 20
determined in accordance with US GAAP. Such changes in exchange 21
17
Testimony of Mustally A. Hussain
Page 17 of 26
rates are outside the control of the Company and its parent, and provide a 1
further basis to reject the use of National Grid plc’s capital structure when 2
setting rates for Niagara Mohawk. 3
4
Q. Are the business risks of the Company similar to those of National 5
Grid plc? 6
A. No, they are not. National Grid plc is an international energy company 7
with operations in the UK, the US and other countries that also owns some 8
unregulated businesses in the UK that have very different business risks 9
than Niagara Mohawk, a regulated utility with operations exclusively in 10
Upstate New York. This is another major reason why the Company’s 11
standalone capital structure rather than National Grid plc’s capital 12
structure should be used for ratemaking purposes. 13
14
Q. Are there any other reasons that a capital structure containing less 15
than 51% common equity should not be used to set electric and gas 16
rates in this proceeding? 17
A. Yes. A capital structure with a common equity ratio of less than 51% 18
could contain a level of debt in excess of that required to support Niagara 19
Mohawk’s current credit rating based on the benchmarks used by S&P in 20
the credit rating process. According to S&P, Niagara Mohawk has an 21
18
Testimony of Mustally A. Hussain
Page 18 of 26
“excellent” business risk profile and a “significant” financial risk profile. 1
Based upon the business and financial risk matrix published by S&P that 2
is shown below, a company with “excellent” business and “significant” 3
financial risk scores would be assigned an A- rating. 4
Business Risk Profile Minimal Modest Intermediate Significant Aggressive Highly LeveragedExcellent AAA AA A A- BBB -Strong AA A A- BBB BB BB-Satisfactory A- BBB+ BBB BB+ BB- B+Fair - BBB- BB+ BB BB- BWeak - - BB BB- B+ B-
Financial Risk Profile
BUSINESS AND FINANCIAL RISK PROFILE MATRIX
Indeed, Niagara Mohawk has an A- corporate credit rating (“CCR”) from 5
S&P, which is compatible with an “excellent” business risk profile and a 6
“significant” financial risk profile. Niagara Mohawk’s senior unsecured 7
debt issuances are also rated A- by S&P. 8
9
Q. What is the degree of debt leverage that is associated with this rating 10
under S&P’s benchmark? 11
A. According to the indicative ratios expected by S&P for a company with a 12
“significant” financial risk score, the total debt, including short- and long-13
term debt, should be in the range of 45% to 50%. These indicative values 14
are shown below. 15
19
Testimony of Mustally A. Hussain
Page 19 of 26
Financial Risk Profile FFO/Debt (%) Debt/EBITDA (x) Debt/Capital (%)Minimal greater than 60 less than 1.5 less than 25Modest 45-60 1.5-2 25-35Intermediate 30-45 2-3 35-45Significant 20-30 3-4 45-50Aggressive 12-20 4-5 50-60
FINANCIAL RISK INDICATIVE RATIOS (CORPORATE)
FFO/Debt is the ratio of the Company’s funds from operations to its total debt. Debt/EBITDA is the ratio of total debt to earnings before interest, taxes, depreciation and amortizations. Debt/Capital is the ratio of total debt to total capital.
Based upon the debt ratios shown above, equity ratios (including common 1
equity and preferred stock) for companies with A- credit ratings should be 2
within the range of 50% to 55%. This is one of the key parameters that 3
should be used to gauge the reasonableness of the common equity ratio 4
proposed in this case. The Company’s forecast equity ratios for fiscal 5
years 2014, 2015, and 2016 are estimated to be 51.4%, 51.9% and 51.3%, 6
respectively. The proposed common equity ratio of 51% is already at the 7
low end of the prescribed S&P range. In addition, the Company is at the 8
low end of Moody’s key financial metrics, and its FFO/Debt and 9
Debt/EBITDA metrics would be considered “Aggressive” and 10
“Significant,” respectively by S&P. Given these metrics, an equity ratio 11
lower than 51% would not be consistent with the Company’s current A- 12
credit rating. 13
20
Testimony of Mustally A. Hussain
Page 20 of 26
Q. Please outline the financing activity used in developing Niagara 1
Mohawk’s projected costs of capital for the 2014, 2015 and 2016 fiscal 2
years. 3
A. Current projections indicate that the Company will need to issue $500 4
million of additional long-term debt in November 2012, $45.6 million in 5
August 2013, $750 million in October 2014 and $100 million in May 2015 6
to fund its capital expenditure program, redeem maturing long-term debt 7
and maintain a capital structure consisting of 51% common equity 8
exclusive of goodwill. (The Company plans to file a financing petition in 2012 9
to obtain authorization for these debt issuances.) The projected costs of 10
capital for each of the three fiscal years assume that the Company will 11
issue this debt as 30-year senior unsecured debt at forecast interest rates of 12
4.85% in November 2012, 5.00% in August 2013, 5.25% in October 2014 13
and 5.50% in May 2015. It has been assumed that the costs to issue this 14
debt will be 0.75% of the principal amounts issued and that these costs 15
will be amortized over the lives of the debt, which effectively increases 16
the annual interest rates on these securities by 3 basis points. 17
18
Q. How were the cost rates of long-term debt for Niagara Mohawk 19
shown on Exhibit __ (MAH-1) derived? 20
21
Testimony of Mustally A. Hussain
Page 21 of 26
A. The long-term debt component of Niagara Mohawk’s capital structure 1
consists of long-term notes payable to Niagara Mohawk’s parent company 2
NMHI, fixed-rate taxable bonds and fixed- and variable-rate tax-exempt 3
bonds issued through NYSERDA, all of which support electric and gas 4
investments. Included in the costs of these bonds are the direct coupon 5
expense, the amortization of debt discounts or premiums, and the 6
amortization of issuance costs where applicable. Exhibit __ (MAH-1), 7
Schedule 1, page 1 of 2 shows the actual interest rate and associated 8
expense for the 12 months ended December 31, 2011 – the Historic Test 9
Year. 10
11
The variable-rate tax-exempt bonds issued through NYSERDA are 12
currently in the auction-rate mode and are backed by bond insurance. The 13
recent turmoil in the auction-rate debt markets has led to widespread 14
auction failures. In the case of a failed auction, the resulting interest rate 15
on the bonds would revert to the maximum rate, which depends on the 16
current appropriate, short-term benchmark rate and the senior secured 17
rating of the Company or the bond insurer, whichever is greater. Because 18
of the ongoing turmoil in the auction-rate bond markets, it is difficult at 19
this time to make reliable projections of the interest rates that the 20
Company’s variable-rate Pollution Control Revenue bonds will pay during 21
22
Testimony of Mustally A. Hussain
Page 22 of 26
the Rate Year and the later Data Years. Therefore, for the time being, it is 1
assumed in Exhibit __ (MAH-1), Schedule 2, pages 1-3 that the interest 2
rates on these bonds will be set at the rates they would revert to if auctions 3
continue to fail. The Company proposes to update these rates if market 4
conditions normalize by the time a decision is about to be reached in this 5
proceeding. 6
7
Also included in the cost of the Company’s long-term debt are the 8
amortizations of call premiums and debt discounts and expenses 9
(“DD&E”) associated with several debt issues that were retired before 10
maturity because it was economically advantageous to do so. These costs 11
are being amortized over the remaining lives of the respective bonds as if 12
they had not been retired early. It is estimated that, on a present value 13
basis, the early retirement of these bonds will save in excess of $75 14
million net of the recovery of call premiums and unamortized DD&E. 15
16
Dividing the total interest, fee and amortization expense for the notes and 17
bonds by the average principal outstanding yields an effective rate of 18
4.14% for the long-term debt component of Niagara Mohawk’s 19
capitalization for fiscal year 2014, 4.57% for fiscal year 2015 and 5.35% 20
for fiscal year 2016. 21
23
Testimony of Mustally A. Hussain
Page 23 of 26
Q. Are you recommending a true-up mechanism for interest on the long-1
term variable-rate bonds? 2
A. Yes, I am. Given the ongoing turmoil in the auction-rate debt market, I 3
recommend that the interest expense on auction-rate debt continue to be 4
fully reconciled whereby differences between the actual expense and the 5
level reflected in rates are deferred and later collected from or passed back 6
to customers as discussed below. This true-up mechanism would be 7
identical to the variable-rate debt deferral and reconciliation mechanism 8
that was approved by the Commission in the 2008 Gas Rate Case and the 9
2010 Electric Rate Case. 10
11
Under the current mechanism, cost increases or decreases compared to the 12
levels reflected in the revenue requirement would be deferred and included 13
in the Electric Delivery Adjustment Mechanism and Gas Delivery 14
Adjustment Mechanism to be recovered from or passed back to customers, 15
as explained in the testimony of the Revenue Requirements Panel. 16
17
Q. How were the projected cost rates of preferred stock shown on 18
Exhibit __ (MAH-1) derived? 19
A. The Company currently has three perpetual issues of preferred stock that 20
will remain outstanding during the Rate and Data Years. The total annual 21
24
Testimony of Mustally A. Hussain
Page 24 of 26
dividend requirement for these three issues was divided by the total 1
average net proceeds outstanding during the Rate Year, yielding an 2
effective rate of 3.66% for the preferred stock component of Niagara 3
Mohawk’s capitalization. Please refer to Exhibit __ (MAH-1), Schedule 4
1, page 2 and Schedule 2, page 4. 5
6
Q. How were the projected cost rates for short-term debt shown on 7
Exhibit __ (MAH-1) derived? 8
A. Under National Grid plc’s money pool agreement, the Company is 9
charged interest on its money pool borrowings at the 30-day A2/P2 10
commercial paper rate as published by the Federal Reserve Board. Those 11
rates are projected to be 0.84% for the Rate Year, 1.22% for Data Year 1 12
and 2.40% for Data Year 2. 13
14
Q. How was the projected 30-day A2/P2 commercial paper rate derived? 15
A. The rate was derived from a forecast of the one-month Libor plus 20 basis 16
points as a proxy by commercial paper dealers based on the rate at which 17
National Grid plc is currently issuing commercial paper. 18
19
Q. How were the balances and the cost rate for customer deposits shown 20
on Exhibit __ (MAH-1) determined? 21
25
Testimony of Mustally A. Hussain
Page 25 of 26
A. Niagara Mohawk’s forecast balances of customer deposits were assumed 1
to remain equal to the actual monthly balance as of December 31, 2011, 2
the end of the Historic Test Year. According to the Commission’s memo 3
in Case 11-M-0536, the Commission has set the customer deposits rate for 4
investor-owned utilities to be 1.65%, effective January 1, 2012. 5
6
Q. What cost rate are you using for the common equity component of 7
Niagara Mohawk’s capital structure? 8
A. I am using a rate of return of 10.55% as supported by Witness Hevert in 9
his testimony for the Rate Year. If rates are to be set for the two Data 10
Years as well, the 10.90% return on equity recommended by Mr. Hevert 11
should be used to reflect the appropriate stay-out premium for all three 12
years. 13
14
Q. Do you believe that it would be appropriate for the Company to 15
update its projections of both new debt issuances and cost rates later 16
in this proceeding? 17
A. Yes. Given the uncertainty in the financial markets, it is in both the 18
Company’s and its customers’ best interests for the Company to update its 19
filing to reflect the most recent information available concerning both the 20
26
Testimony of Mustally A. Hussain
Page 26 of 26
Company’s financing plans and its cost projections near the time of a 1
Commission decision in this case. 2
3
Q. Does this conclude your direct testimony? 4
A. Yes, it does. 5
27
Exhibits of
Mustally H
ussain
Testimony of Mustally A. Hussain
Index of Exhibits Exhibit__ (MAH-1) Capital Structure and Weighted Average Cost of Capital Exhibit__ (MAH-2) Workpapers Supporting Exhibit __ (MAH-1) Exhibit__ (MAH-3) S&P and Moody’s Credit Reports and Methodology
28
E
xhibit __ (MA
H-1)
Testimony of Mustally A. Hussain
Exhibit __ (MAH-1)
Capital Structure and Weighted Average Cost of Capital
29
Exhibit__ (MAH-1) Schedule 1
Exhibit__ (MAH-1)
Schedule 1
30
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 1
Pag
e 1
of 2
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
WE
IGH
TE
D A
VE
RA
GE
CO
ST
OF
LO
NG
-TE
RM
DE
BT
For
12
mon
ths
peri
od E
ndin
g D
ecem
ber
31, 2
011
($00
0)
AN
NU
AL
TO
TA
LA
NN
UA
LA
MO
RT
IZA
TIO
NIN
TE
RE
ST
LO
NG
-TE
RM
DE
BT
RA
TE
MA
TU
RIT
YP
RIN
CIP
AL
INT
ER
ES
TD
EB
T D
ISC
OU
NT
AN
D A
NN
UA
LE
FF
EC
TIV
E %
DA
TE
AM
OU
NT
& F
EE
SA
ND
EX
PE
NS
EA
MO
RT
IZA
TIO
NR
AT
E4.
881%
Sen
ior
Not
es4.
881%
08/1
5/20
1975
0,00
036
,608
390
36,9
984.
93%
3.55
3% S
enio
r N
otes
3.55
3%10
/01/
2014
500,
000
17,7
6536
018
,125
3.63
%5.
15%
Pol
luti
on C
ontr
ol T
ax E
xem
pt5.
150%
11/0
1/20
2575
,000
3,86
315
64,
019
5.36
%19
85 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
0.95
7%07
/01/
2015
100,
000
957
300
1,25
71.
26%
1985
Ser
ies
B P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
743%
12/0
1/20
2537
,500
279
9036
90.
98%
1985
Ser
ies
C P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
739%
12/0
1/20
2537
,500
277
9036
70.
98%
1986
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
953%
12/0
1/20
2650
,000
477
8055
71.
11%
1987
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
731%
03/0
1/20
2725
,760
188
5123
90.
93%
1987
Ser
ies
B-1
Pol
luti
on C
ontr
ol R
even
ue B
onds
0.95
3%07
/01/
2027
68,2
0065
074
724
1.06
%19
87 S
erie
s B
-2 P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
955%
07/0
1/20
2725
,000
239
7431
31.
25%
1988
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
942%
12/0
1/20
2369
,800
657
134
791
1.13
%19
91 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
0.73
9%10
/01/
2013
45,6
0033
733
667
31.
48%
2004
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds0.
942%
07/0
1/20
2911
5,70
51,
090
301
1,39
11.
20%
Not
e pa
yabl
e to
NM
HI
(Int
erco
. Not
e)5.
800%
11/0
1/20
1250
0,00
029
,000
029
,000
5.80
%A
mor
tiza
tion
of
Rea
quir
ed D
ebt C
all P
rem
ium
s &
DD
&E
2,71
62,
716
$2,4
00,0
65$9
2,38
5$5
,152
$97,
538
4.06
%
Post
Tes
t-Yea
r / P
re-R
ate
Year
Rep
aym
ents
and
Issu
ance
s
Rep
aym
ents
:N
ote
paya
ble
to N
MH
I (I
nter
co. N
ote)
5.80
0%11
/01/
2012
(500
,000
)(2
9,00
0)0
(29,
000)
5.80
%
New
Iss
uanc
es:
4.85
% 3
0-Y
ear
Sen
ior
Not
es I
ssue
d N
ov 2
012
4.85
0%11
/01/
2042
500,
000
24,2
5012
524
,375
4.88
%
Tot
al L
ong-
Ter
m D
ebt
$2,4
00,0
65$8
7,63
5$5
,277
$92,
913
3.87
%
Not
esT
he in
tere
st r
ates
on
the
vari
able
rat
e po
llut
ion
cont
rol r
even
ue b
onds
incl
udes
fee
s fo
r re
mar
keti
ng a
nd a
nnua
l ins
uran
ce p
rem
ium
s.
Exhibit __ (MAH-1) Schedule 1 Page 1 of 2
31
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 1
Pag
e 2
of 2
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
WE
IGH
TE
D A
VE
RA
GE
CO
ST
OF
PR
EF
ER
RE
D S
TO
CK
For
12
mon
ths
peri
od E
ndin
g D
ecem
ber
31, 2
011
($00
0)
AN
NU
AL
AM
OR
TIZ
AT
ION
TO
TA
LN
ET
ISS
UA
NC
E E
XP
.D
IVID
EN
DP
RE
FE
RR
ED
ST
OC
KP
AR
CA
LL
RA
TE
PR
OC
EE
DS
AN
NU
AL
AN
D D
ISC
OU
NT
AN
D A
NN
UA
LE
FF
EC
TIV
EV
AL
UE
PR
ICE
%O
UT
ST
AN
DIN
GD
IVID
EN
DO
R P
RE
MIU
MA
MO
RT
IZA
TIO
NR
AT
EN
MK
3.4
0%10
0.0
103.
53.
40%
5,75
219
60
196
3.40
%N
MK
3.6
0%10
0.0
104.
93.
60%
13,7
1549
40
494
3.60
%N
MK
3.9
0%10
0.0
106.
03.
90%
9,51
737
10
371
3.90
%$2
8,98
5$1
,060
$0$1
,060
3.66
%
Exhibit __ (MAH-1) Schedule 1 Page 2 of 2
32
Exhibit__ (MAH-1) Schedule 2
Exhibit__ (MAH-1)
Schedule 2
33
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 1
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
SE
NIO
R S
EC
UR
ITIE
S (
RA
TE
YE
AR
)A
ND
RA
TE
OF
RE
TU
RN
($00
0)E
stim
ated
Cos
t of
Lon
g-T
erm
Deb
t for
12-
mon
ths
peri
od e
ndin
g M
arch
31,
201
4
Tot
al I
nter
est
MA
TU
RIT
YP
rinc
ipal
Eff
ecti
vean
d A
nnua
lD
AT
EA
mou
ntR
ate
Am
orti
zati
on
As
of M
arch
31,
201
3 (P
er S
ched
ule
1, P
age
1)2,
400,
065
3.87
%$9
2,91
3
Var
iab
le I
nte
rest
Rat
e C
han
ges:
1985
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2015
100,
000
1.00
%99
919
85 S
erie
s B
Pol
luti
on C
ontr
ol R
even
ue B
onds
12/0
1/20
2537
,500
1.00
%37
419
85 S
erie
s C
Pol
luti
on C
ontr
ol R
even
ue B
onds
12/0
1/20
2537
,500
1.00
%37
519
86 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
12/0
1/20
2650
,000
1.00
%50
119
87 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
03/0
1/20
2725
,760
1.01
%25
919
87 S
erie
s B
-1 P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2027
68,2
001.
00%
684
1987
Ser
ies
B-2
Pol
luti
on C
ontr
ol R
even
ue B
onds
07/0
1/20
2725
,000
1.00
%25
019
88 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
12/0
1/20
2369
,800
1.00
%69
819
91 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
10/0
1/20
1345
,600
1.00
%45
720
04 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
07/0
1/20
2911
5,70
51.
00%
1,15
6
Rep
aym
ents
:19
91 $
45.6
M S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
10/0
1/20
13(2
2,73
8)2.
48%
(564
)
New
Iss
uanc
es:
5.00
% $
45.6
M 3
0-Y
ear
Sen
ior
Not
es I
ssue
d A
ugus
t 201
308
/01/
2043
30,3
585.
03%
1,52
6
A
mor
tiza
tion
of
Rea
quir
ed D
ebt C
all P
rem
ium
s &
DD
&E
(8)
Tot
al L
ong-
Ter
m D
ebt
$2,4
07,6
864.
14%
$99,
621
Exhibit __ (MAH-1) Schedule 2 Page 1 of 8
34
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 2
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
SE
NIO
R S
EC
UR
ITIE
S (
DA
TA
YE
AR
1)
AN
D R
AT
E O
F R
ET
UR
N($
000)
Est
imat
ed C
ost o
f L
ong-
Ter
m D
ebt f
or 1
2-m
onth
per
iod
endi
ng M
arch
31,
201
5
Tot
al I
nter
est
MA
TU
RIT
YP
rinc
ipal
Eff
ecti
vean
d A
nnua
lD
AT
EA
mou
ntR
ate
Am
orti
zati
on
A
s of
Mar
ch 3
1, 2
014
2,40
0,06
54.
16%
$99,
830
Var
iab
le R
ate
Ch
ange
s:19
85 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
07/0
1/20
1510
0,00
00.
96%
964
1985
Ser
ies
B P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2025
37,5
000.
96%
361
1985
Ser
ies
C P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2025
37,5
000.
96%
361
1986
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2026
50,0
000.
96%
482
1987
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds03
/01/
2027
25,7
600.
96%
248
1987
Ser
ies
B-1
Pol
luti
on C
ontr
ol R
even
ue B
onds
07/0
1/20
2768
,200
0.96
%65
719
87 S
erie
s B
-2 P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2027
25,0
000.
96%
241
1988
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2023
69,8
000.
96%
673
2004
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2029
115,
705
0.96
%1,
115
Rep
aym
ents
:3.
553%
$50
0M S
enio
r N
otes
10/0
1/20
14(2
49,3
15)
3.63
%(9
,038
)
New
Iss
uanc
es:
5.25
% $
750M
30-
Yea
r S
enio
r N
otes
Iss
ued
Oct
ober
201
410
/01/
2044
373,
973
5.28
%19
,727
A
mor
tiza
tion
of
Rea
quir
ed D
ebt C
all P
rem
ium
s &
DD
&E
(153
)
Tot
al L
ong-
Ter
m D
ebt
$2,5
24,7
234.
57%
$115
,468
Exhibit __ (MAH-1) Schedule 2 Page 2 of 8
35
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 3
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
SE
NIO
R S
EC
UR
ITIE
S (
DA
TA
YE
AR
2)
AN
D R
AT
E O
F R
ET
UR
N($
000)
Est
imat
ed C
ost o
f L
ong-
Ter
m D
ebt f
or 1
2-m
onth
s pe
riod
end
ing
Mar
ch 3
1, 2
016
Tot
al I
nter
est
MA
TU
RIT
YP
rinc
ipal
Eff
ecti
vean
d A
nnua
lD
AT
EA
mou
ntR
ate
Am
orti
zati
on
A
s of
Mar
ch 3
1, 2
015
2,65
0,06
54.
77%
$126
,407
V
aria
ble
Rat
e C
hang
es:
1985
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2015
100,
000
2.94
%2,
943
1985
Ser
ies
B P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2025
37,5
002.
94%
1,10
419
85 S
erie
s C
Pol
luti
on C
ontr
ol R
even
ue B
onds
12/0
1/20
2537
,500
2.94
%1,
104
1986
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2026
50,0
002.
94%
1,47
119
87 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
03/0
1/20
2725
,760
2.94
%75
819
87 S
erie
s B
-1 P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2027
68,2
002.
94%
2,00
719
87 S
erie
s B
-2 P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2027
25,0
002.
94%
736
1988
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds12
/01/
2023
69,8
002.
94%
2,05
420
04 S
erie
s A
Pol
luti
on C
ontr
ol R
even
ue B
onds
07/0
1/20
2911
5,70
52.
94%
3,40
5
Rep
aym
ents
:19
85 $
100M
Ser
ies
A P
ollu
tion
Con
trol
Rev
enue
Bon
ds07
/01/
2015
(75,
342)
5.79
%(4
,366
)
New
Iss
uanc
es:
5.50
% $
100M
30-
Yea
r S
enio
r N
otes
Iss
ued
May
201
505
/01/
2045
92,0
555.
53%
5,08
6
A
mor
tiza
tion
of
Rea
quir
ed D
ebt C
all P
rem
ium
s &
DD
&E
(105
)
T
otal
Lon
g-T
erm
Deb
t$2
,666
,777
5.35
%$1
42,6
03
Exhibit __ (MAH-1) Schedule 2 Page 3 of 8
36
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 4
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
SE
NIO
R S
EC
UR
ITIE
SA
ND
RA
TE
OF
RE
TU
RN
($00
0)
Tot
al I
nter
est
Pri
ncip
leE
ffec
tive
and
Ann
ual
Est
imat
ed C
ost o
f P
refe
rred
Sto
ck f
or y
ear
endi
ng M
arch
31,
201
4A
mou
ntR
ate
Am
orti
zati
on
A
s of
Dec
embe
r 31
, 201
1 (P
er S
ched
ule
1, P
age
2)28
,985
3.66
%$1
,060
S
inki
ng F
unds
0
R
efun
ding
s0
N
ew I
ssua
nces
0
T
otal
Pre
ferr
ed S
tock
$28,
985
3.66
%$1
,060
Est
imat
ed C
ost o
f P
refe
rred
Sto
ck f
or y
ear
endi
ng M
arch
31,
201
5
S
inki
ng F
unds
0
R
efun
ding
s0
N
ew I
ssua
nces
0
T
otal
Pre
ferr
ed S
tock
$28,
985
3.66
%$1
,060
Est
imat
ed C
ost o
f P
refe
rred
Sto
ck f
or y
ear
endi
ng M
arch
31,
201
6
S
inki
ng F
unds
0
R
efun
ding
s0
N
ew I
ssua
nces
0
T
otal
Pre
ferr
ed S
tock
$28,
985
3.66
%$1
,060
Exhibit __ (MAH-1) Schedule 2 Page 4 of 8
37
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 5
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
CA
PIT
AL
(R
AT
E Y
EA
R)
AN
D R
AT
E O
F R
ET
UR
N($
000)
For
13-
mon
ths
peri
od e
ndin
g M
arch
31,
201
4
Tot
alL
ong-
Ter
mS
hort
-Ter
mP
refe
rred
Com
mon
Ret
aine
dL
ess
Com
mon
Cus
tom
er
Tot
alD
ebt
Deb
tS
tock
Sto
ckE
arni
ngs
Goo
dwil
lE
quit
yD
epos
its
Cap
ital
izat
ion
Bal
ance
as
of D
ecem
ber
31, 2
011
2,40
0,06
50
28,9
853,
100,
505
709,
923
1,28
9,13
22,
521,
296
37,5
594,
987,
905
Cha
nges
to M
arch
31,
201
3-
51
,758
-
-
85
,880
-
85,8
80-
13
7,63
7B
alan
ce a
s of
Mar
ch 3
1, 2
013
2,40
0,06
551
,758
28
,985
3,10
0,50
579
5,80
31,
289,
132
2,60
7,17
637
,559
5,12
5,54
2
Apr
il 2
013
2,40
0,06
5-
28
,985
3,10
0,50
582
1,60
01,
289,
132
2,63
2,97
337
,559
5,09
9,58
2 M
ay 2
013
2,40
0,06
5-
28
,985
3,10
0,50
584
5,13
61,
289,
132
2,65
6,50
937
,559
5,12
3,11
8 J
une
2013
2,40
0,06
5-
28
,985
3,10
0,50
586
3,69
11,
289,
132
2,67
5,06
337
,559
5,14
1,67
2 J
uly
2013
2,40
0,06
5-
28
,985
3,10
0,50
588
5,69
61,
289,
132
2,69
7,06
937
,559
5,16
3,67
8 A
ugus
t 201
3
2,44
5,66
5-
28
,985
3,10
0,50
578
2,36
71,
289,
132
2,59
3,74
037
,559
5,10
5,94
9 S
epte
mbe
r 20
132,
445,
665
87,1
77
28,9
853,
100,
505
803,
732
1,28
9,13
22,
615,
105
37,5
595,
214,
491
Oct
ober
201
32,
400,
065
157,
722
28
,985
3,10
0,50
581
7,09
71,
289,
132
2,62
8,47
037
,559
5,25
2,80
1 N
ovem
ber
2013
2,40
0,06
579
,197
28
,985
3,10
0,50
584
0,67
01,
289,
132
2,65
2,04
337
,559
5,19
7,84
9 D
ecem
ber
2013
2,40
0,06
547
,980
28
,985
3,10
0,50
587
5,04
71,
289,
132
2,68
6,42
037
,559
5,20
1,00
9 J
anua
ry 2
014
2,40
0,06
540
,254
28
,985
3,10
0,50
591
1,53
51,
289,
132
2,72
2,90
837
,559
5,22
9,77
1 F
ebru
ary
2014
2,40
0,06
589
,312
28
,985
3,10
0,50
594
6,33
01,
289,
132
2,75
7,70
337
,559
5,31
3,62
3
E
leve
n M
onth
s T
otal
26,4
91,9
1550
1,64
231
8,83
534
,105
,555
9,39
2,90
114
,180
,453
29,3
18,0
0341
3,14
957
,043
,544
Mar
ch 2
013
2,40
0,06
551
,758
28,9
853,
100,
505
795,
803
1,28
9,13
22,
607,
176
37,5
595,
125,
542
Mar
ch 2
014
2,40
0,06
520
2,52
428
,985
3,10
0,50
597
5,40
71,
289,
132
2,78
6,78
037
,559
5,45
5,91
4
Tot
al M
arch
201
3 &
201
44,
800,
130
254,
282
57,9
706,
201,
010
1,77
1,21
02,
578,
264
5,39
3,95
675
,118
10,5
81,4
56
Mar
ch 2
013
& 2
014
Ave
rage
2,40
0,06
512
7,14
128
,985
3,10
0,50
588
5,60
51,
289,
132
2,69
6,97
837
,559
5,29
0,72
8
T
wel
ve M
onth
s T
otal
28,8
91,9
8062
8,78
334
7,82
037
,206
,060
10,2
78,5
0615
,469
,585
32,0
14,9
8145
0,70
862
,334
,272
A
nnua
l Ave
rage
2,40
7,66
552
,399
28,9
853,
100,
505
856,
542
1,28
9,13
22,
667,
915
37,5
595,
194,
523
C
apit
aliz
atio
n R
atio
s46
.4%
1.0%
0.6%
51.4
%0.
7%10
0.0%
C
ost R
ates
4.14
%0.
84%
3.66
%10
.55%
1.65
%
Ret
urn
Com
pon
ents
1.92
%0.
01%
0.02
%5.
42%
0.01
%7.
38%
Exhibit __ (MAH-1) Schedule 2 Page 5 of 8
38
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 6
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
CA
PIT
AL
(F
OR
AD
JUD
ICA
TE
D R
AT
E Y
EA
R)
AN
D R
AT
E O
F R
ET
UR
N($
000)
For
13-
mon
ths
peri
od e
ndin
g M
arch
31,
201
4
Tot
alL
ong-
Ter
mS
hort
-Ter
mP
refe
rred
Com
mon
Ret
aine
dL
ess
Com
mon
Cus
tom
er
Tot
alD
ebt
Deb
tS
tock
Sto
ckE
arni
ngs
Goo
dwil
lE
quit
yD
epos
its
Cap
ital
izat
ion
Bal
ance
as
of D
ecem
ber
31, 2
011
2,40
0,06
50
28,9
853,
100,
505
709,
923
1,28
9,13
22,
521,
296
37,5
594,
987,
905
Cha
nges
to M
arch
31,
201
3-
51
,758
-
-
85
,880
-
85,8
80-
13
7,63
7B
alan
ce a
s of
Mar
ch 3
1, 2
013
2,40
0,06
551
,758
28
,985
3,10
0,50
579
5,80
31,
289,
132
2,60
7,17
637
,559
5,12
5,54
2
Apr
il 2
013
2,40
0,06
5-
28
,985
3,10
0,50
582
1,60
01,
289,
132
2,63
2,97
337
,559
5,09
9,58
2 M
ay 2
013
2,40
0,06
5-
28
,985
3,10
0,50
584
5,13
61,
289,
132
2,65
6,50
937
,559
5,12
3,11
8 J
une
2013
2,40
0,06
5-
28
,985
3,10
0,50
586
3,69
11,
289,
132
2,67
5,06
337
,559
5,14
1,67
2 J
uly
2013
2,40
0,06
5-
28
,985
3,10
0,50
588
5,69
61,
289,
132
2,69
7,06
937
,559
5,16
3,67
8 A
ugus
t 201
3
2,44
5,66
5-
28
,985
3,10
0,50
578
2,36
71,
289,
132
2,59
3,74
037
,559
5,10
5,94
9 S
epte
mbe
r 20
132,
445,
665
87,1
77
28,9
853,
100,
505
803,
732
1,28
9,13
22,
615,
105
37,5
595,
214,
491
Oct
ober
201
32,
400,
065
157,
722
28
,985
3,10
0,50
581
7,09
71,
289,
132
2,62
8,47
037
,559
5,25
2,80
1 N
ovem
ber
2013
2,40
0,06
579
,197
28
,985
3,10
0,50
584
0,67
01,
289,
132
2,65
2,04
337
,559
5,19
7,84
9 D
ecem
ber
2013
2,40
0,06
547
,980
28
,985
3,10
0,50
587
5,04
71,
289,
132
2,68
6,42
037
,559
5,20
1,00
9 J
anua
ry 2
014
2,40
0,06
540
,254
28
,985
3,10
0,50
591
1,53
51,
289,
132
2,72
2,90
837
,559
5,22
9,77
1 F
ebru
ary
2014
2,40
0,06
589
,312
28
,985
3,10
0,50
594
6,33
01,
289,
132
2,75
7,70
337
,559
5,31
3,62
3
E
leve
n M
onth
s T
otal
26,4
91,9
1550
1,64
231
8,83
534
,105
,555
9,39
2,90
114
,180
,453
29,3
18,0
0341
3,14
957
,043
,544
Mar
ch 2
013
2,40
0,06
551
,758
28,9
853,
100,
505
795,
803
1,28
9,13
22,
607,
176
37,5
595,
125,
542
Mar
ch 2
014
2,40
0,06
520
2,52
428
,985
3,10
0,50
597
5,40
71,
289,
132
2,78
6,78
037
,559
5,45
5,91
4
Tot
al M
arch
201
3 &
201
44,
800,
130
254,
282
57,9
706,
201,
010
1,77
1,21
02,
578,
264
5,39
3,95
675
,118
10,5
81,4
56
Mar
ch 2
013
& 2
014
Ave
rage
2,40
0,06
512
7,14
128
,985
3,10
0,50
588
5,60
51,
289,
132
2,69
6,97
837
,559
5,29
0,72
8
T
wel
ve M
onth
s T
otal
28,8
91,9
8062
8,78
334
7,82
037
,206
,060
10,2
78,5
0615
,469
,585
32,0
14,9
8145
0,70
862
,334
,272
A
nnua
l Ave
rage
2,40
7,66
552
,399
28,9
853,
100,
505
856,
542
1,28
9,13
22,
667,
915
37,5
595,
194,
523
C
apit
aliz
atio
n R
atio
s46
.4%
1.0%
0.6%
51.4
%0.
7%10
0.0%
C
ost R
ates
4.14
%0.
84%
3.66
%10
.90%
1.65
%
Ret
urn
Com
pon
ents
1.92
%0.
01%
0.02
%5.
60%
0.01
%7.
56%
Exhibit __ (MAH-1) Schedule 2 Page 6 of 8
39
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 7
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
CA
PIT
AL
(F
OR
AD
JUD
ICA
TE
D D
AT
A Y
EA
R 1
)A
ND
RA
TE
OF
RE
TU
RN
($00
0)F
or 1
3-m
onth
s pe
riod
end
ing
Mar
ch 3
1, 2
015
Tot
alL
ong-
Ter
mS
hort
-Ter
mP
refe
rred
Com
mon
Ret
aine
dL
ess
Com
mon
Cus
tom
er
Tot
alD
ebt
Deb
tS
tock
Sto
ckE
arni
ngs
Goo
dwil
lE
quit
yD
epos
its
Cap
ital
izat
ion
Bal
ance
as
of M
arch
31,
201
42,
400,
065
202,
524
28,9
853,
100,
505
975,
407
1,28
9,13
22,
786,
780
37,5
595,
455,
914
Apr
il 2
014
2,40
0,06
5-
28
,985
3,10
0,50
599
9,21
4
1,28
9,13
22,
810,
587
37,5
595,
277,
196
May
201
42,
400,
065
-
28,9
853,
100,
505
1,01
9,98
3
1,
289,
132
2,83
1,35
637
,559
5,29
7,96
5 J
une
2014
2,40
0,06
5-
28
,985
3,10
0,50
51,
035,
972
1,28
9,13
22,
847,
345
37,5
595,
313,
954
Jul
y 20
142,
400,
065
21,9
22
28,9
853,
100,
505
1,05
7,44
3
1,
289,
132
2,86
8,81
637
,559
5,35
7,34
6 A
ugus
t 201
4
2,40
0,06
528
,447
28
,985
3,10
0,50
51,
078,
859
1,28
9,13
22,
890,
232
37,5
595,
385,
288
Sep
tem
ber
2014
2,40
0,06
511
8,50
1
28,9
853,
100,
505
1,10
0,14
6
1,
289,
132
2,91
1,51
937
,559
5,49
6,62
8 O
ctob
er 2
014
2,65
0,06
511
9,64
4
28,9
853,
100,
505
934,
951
1,
289,
132
2,74
6,32
437
,559
5,58
2,57
7 N
ovem
ber
2014
2,65
0,06
527
,728
28
,985
3,10
0,50
595
5,79
0
1,28
9,13
22,
767,
163
37,5
595,
511,
500
Dec
embe
r 20
142,
650,
065
-
28,9
853,
100,
505
987,
957
1,
289,
132
2,79
9,33
037
,559
5,51
5,93
9 J
anua
ry 2
015
2,65
0,06
5-
28
,985
3,10
0,50
51,
027,
049
1,28
9,13
22,
838,
422
37,5
595,
555,
031
Feb
ruar
y 20
152,
650,
065
48,0
30
28,9
853,
100,
505
1,06
1,30
8
1,
289,
132
2,87
2,68
137
,559
5,63
7,32
0
E
leve
n M
onth
s T
otal
27,6
50,7
1536
4,27
231
8,83
534
,105
,555
11,2
58,6
7214
,180
,453
31,1
83,7
7441
3,14
959
,930
,745
Mar
ch 2
014
2,40
0,06
520
2,52
428
,985
3,10
0,50
597
5,40
71,
289,
132
2,78
6,78
037
,559
5,45
5,91
4 M
arch
201
52,
650,
065
153,
021
28
,985
3,10
0,50
51,
089,
154
1,28
9,13
22,
900,
526
37,5
595,
770,
157
T
otal
Mar
ch 2
014
& 2
015
5,05
0,13
035
5,54
657
,970
6,20
1,01
02,
064,
561
2,57
8,26
45,
687,
306
75,1
1811
,226
,070
M
arch
201
4 &
201
5 A
vera
ge2,
525,
065
177,
773
28,9
853,
100,
505
1,03
2,28
01,
289,
132
2,84
3,65
337
,559
5,61
3,03
5
T
wel
ve M
onth
s T
otal
30,1
75,7
8054
2,04
534
7,82
037
,206
,060
12,2
90,9
5315
,469
,585
34,0
27,4
2845
0,70
865
,543
,780
A
nnua
l Ave
rage
2,51
4,64
845
,170
28,9
853,
100,
505
1,02
4,24
61,
289,
132
2,83
5,61
937
,559
5,46
1,98
2
C
apit
aliz
atio
n R
atio
s46
.0%
0.8%
0.5%
51.9
%0.
7%10
0.0%
C
ost R
ates
4.57
%1.
22%
3.66
%10
.90%
1.65
%
Ret
urn
Com
pon
ents
2.11
%0.
01%
0.02
%5.
66%
0.01
%7.
81%
Exhibit __ (MAH-1) Schedule 2 Page 7 of 8
40
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 2
Pag
e 8
of 8
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
ES
TIM
AT
ED
CO
ST
OF
CA
PIT
AL
(F
OR
AD
JUD
ICA
TE
D D
AT
A Y
EA
R 2
)A
ND
RA
TE
OF
RE
TU
RN
($00
0)F
or 1
3-m
onth
s pe
riod
end
ing
Mar
ch 3
1, 2
016
Tot
alL
ong-
Ter
mS
hort
-Ter
mP
refe
rred
Com
mon
Ret
aine
dL
ess
Com
mon
Cus
tom
er
Tot
alD
ebt
Deb
tS
tock
Sto
ckE
arni
ngs
Goo
dwil
lE
quit
yD
epos
its
Cap
ital
izat
ion
Bal
ance
as
of M
arch
31,
201
52,
650,
065
153,
021
28,9
853,
100,
505
1,08
9,15
41,
289,
132
2,90
0,52
637
,559
5,77
0,15
7
Apr
il 2
015
2,65
0,06
5-
28
,985
3,10
0,50
51,
110,
855
1,28
9,13
22,
922,
228
37,5
595,
638,
837
May
201
52,
750,
065
-
28,9
853,
100,
505
1,12
9,26
6
1,
289,
132
2,94
0,63
937
,559
5,75
7,24
8 J
une
2015
2,75
0,06
5-
28
,985
3,10
0,50
51,
142,
847
1,28
9,13
22,
954,
220
37,5
595,
770,
829
Jul
y 20
152,
650,
065
66,5
30
28,9
853,
100,
505
1,16
2,04
9
1,
289,
132
2,97
3,42
237
,559
5,75
6,56
1 A
ugus
t 201
5
2,65
0,06
577
,682
28
,985
3,10
0,50
51,
181,
079
1,28
9,13
22,
992,
452
37,5
595,
786,
743
Sep
tem
ber
2015
2,65
0,06
516
9,99
1
28,9
853,
100,
505
1,19
9,96
3
1,
289,
132
3,01
1,33
637
,559
5,89
7,93
6 O
ctob
er 2
015
2,65
0,06
526
9,59
9
28,9
853,
100,
505
1,20
7,77
9
1,
289,
132
3,01
9,15
237
,559
6,00
5,36
0 N
ovem
ber
2015
2,65
0,06
518
6,93
6
28,9
853,
100,
505
1,22
7,65
1
1,
289,
132
3,03
9,02
437
,559
5,94
2,56
8 D
ecem
ber
2015
2,65
0,06
514
9,58
2
28,9
853,
100,
505
1,26
2,26
6
1,
289,
132
3,07
3,63
937
,559
5,93
9,83
0 J
anua
ry 2
016
2,65
0,06
515
1,44
6
28,9
853,
100,
505
1,29
7,91
0
1,
289,
132
3,10
9,28
337
,559
5,97
7,33
8 F
ebru
ary
2016
2,65
0,06
521
3,18
8
28,9
853,
100,
505
1,33
1,65
8
1,
289,
132
3,14
3,03
137
,559
6,07
2,82
8
E
leve
n M
onth
s T
otal
29,3
50,7
151,
284,
954
318,
835
34,1
05,5
5513
,253
,324
14,1
80,4
5333
,178
,426
413,
149
64,5
46,0
79
Mar
ch 2
015
2,65
0,06
515
3,02
128
,985
3,10
0,50
51,
089,
154
1,28
9,13
22,
900,
526
37,5
595,
770,
157
Mar
ch 2
016
2,65
0,06
531
8,95
9
28,9
853,
100,
505
1,35
8,82
3
1,
289,
132
3,17
0,19
637
,559
6,20
5,76
4
Tot
al M
arch
201
5 &
201
65,
300,
130
471,
981
57,9
706,
201,
010
2,44
7,97
62,
578,
264
6,07
0,72
275
,118
11,9
75,9
21
Mar
ch 2
015
& 2
016
Ave
rage
2,65
0,06
523
5,99
028
,985
3,10
0,50
51,
223,
988
1,28
9,13
23,
035,
361
37,5
595,
987,
960
T
wel
ve M
onth
s T
otal
32,0
00,7
801,
520,
945
347,
820
37,2
06,0
6014
,477
,312
15,4
69,5
8536
,213
,787
450,
708
70,5
34,0
40
A
nnua
l Ave
rage
2,66
6,73
212
6,74
528
,985
3,10
0,50
51,
206,
443
1,28
9,13
23,
017,
816
37,5
595,
877,
837
C
apit
aliz
atio
n R
atio
s45
.4%
2.2%
0.5%
51.3
%0.
6%10
0.0%
C
ost R
ates
5.35
%2.
40%
3.66
%10
.90%
1.65
%
Ret
urn
Com
pon
ents
2.43
%0.
05%
0.02
%5.
60%
0.01
%8.
11%
Exhibit __ (MAH-1) Schedule 2 Page 8 of 8
41
Exhibit__ (MAH-1) Schedule 3
Exhibit__ (MAH-1)
Schedule 3
42
Exh
ibit
___
(M
AH
-1)
Sch
edul
e 3
Pag
e 1
of 1
NIA
GA
RA
MO
HA
WK
PO
WE
R C
OR
PO
RA
TIO
N d
/b/a
NA
TIO
NA
L G
RID
Sou
rces
and
Use
of
Fun
ds S
tate
men
t an
d C
redi
t Met
rics
($00
0)
Rat
e Y
ear
Dat
a Y
ear
Dat
a Y
ear
Sou
rces
of
Fun
ds E
ndin
g 3/
31/1
4 E
ndin
g 3/
31/1
5 E
ndin
g 3/
31/1
6
In
tern
al
Pro
fit A
fter
Tax
es30
5,66
428
9,80
627
0,72
9
Dep
reci
atio
n &
Am
orti
zati
on23
1,30
424
6,23
926
1,63
1
Def
erre
d T
axes
61,6
6756
,545
58,1
27
Pen
sion
s, d
efer
rals
, and
oth
er n
on-c
ash
item
s(1
77,0
71)
(93,
424)
(118
,363
)
Cha
nges
in w
orki
ng c
apit
al/o
ther
item
s 15
1,07
099
,905
11,9
90
Tot
al I
nter
nal S
ourc
es57
2,63
459
9,07
148
4,11
5
E
xter
nal
L
ong-
Ter
m D
ebt
45,6
0075
0,00
010
0,00
0
Mon
ey P
ool B
orro
win
gs15
0,76
720
0,49
716
5,93
8P
refe
rred
Sto
ck0
00
Cus
tom
er D
epos
its
00
0
Tot
al E
xter
nal S
ourc
es19
6,36
795
0,49
726
5,93
8
Tot
al S
ourc
es o
f F
unds
769,
001
1,54
9,56
875
0,05
3
Use
s of
Fun
ds
C
apit
al E
xpen
ditu
res
597,
341
623,
508
648,
993
D
ivid
end
Pay
men
ts12
6,06
017
6,06
01,
060
R
edem
ptio
ns
L
ong-
Ter
m D
ebt
45,6
0050
0,00
010
0,00
0
Mon
ey P
ool D
ebt
025
0,00
00
Pre
ferr
ed S
tock
00
0C
usto
mer
Dep
osit
s0
00
Tot
al U
ses
of F
unds
769,
001
1,54
9,56
875
0,05
3
Moo
dys
Fun
ds F
low
Int
eres
t Cov
erag
e (x
)6.
5A
a6.
2A
a4.
7A
FF
O/D
ebt
16.2
%B
aa17
.8%
Baa
15.9
%B
aaF
FO
- D
ivid
ends
/Deb
t11
.4%
Baa
11.5
%B
aa15
.9%
Baa
Deb
t / C
apit
al *
*36
%A
37%
A37
%A
Baa
Baa
Baa
S&
PF
FO
/Deb
t16
.2%
Agg
ress
ive
17.8
%A
ggre
ssiv
e15
.9%
Agg
ress
ive
Deb
t/E
BIT
DA
(x)
3.2
Sig
nifi
cant
3.4
Sig
nifi
cant
3.5
Sig
nifi
cant
Deb
t / C
apit
al48
%S
igni
fica
nt49
%S
igni
fica
nt48
%S
igni
fica
ntSi
gnifi
cant
Sign
ifica
ntSi
gnifi
cant
* F
inan
cing
pet
itio
n w
ill b
e fi
led
post
rat
e fi
ling
** I
nclu
des
Lon
g T
erm
Def
erre
d T
axes
(pe
r M
oody
s D
efin
itio
n of
Deb
t / C
apit
al)
Exhibit __ (MAH-1) Schedule 3 Page 1 of 1
43
Exhibit __ (M
AH
-2)
Testimony of Mustally A. Hussain
Exhibit __ (MAH-2)
Workpapers Supporting Exhibit __ (MAH-1)
44
Interest Rates Workpaper
Period1 Month LIBOR Spread
MP Rate Variable Rate*
Apr 2013 0.52% 0.20% 0.72% 1.30%May 2013 0.54% 0.20% 0.74% 1.35%Jun 2013 0.56% 0.20% 0.76% 1.41%
Jul 2013 0.58% 0.20% 0.78% 1.46%Aug 2013 0.60% 0.20% 0.80% 1.51%Sep 2013 0.63% 0.20% 0.83% 1.56%Oct 2013 0.65% 0.20% 0.85% 1.61%Nov 2013 0.67% 0.20% 0.87% 1.67%Dec 2013 0.69% 0.20% 0.89% 1.72%Jan 2014 0.71% 0.20% 0.91% 1.77%Feb 2014 0.73% 0.20% 0.93% 1.82%Mar 2014 0.75% 0.20% 0.95% 1.88%Average 0.84% 1.59%
Apr 2014 0.79% 0.20% 0.99% 1.98%May 2014 0.83% 0.20% 1.03% 2.08%Jun 2014 0.88% 0.20% 1.08% 2.19%Jul 2014 0.92% 0.20% 1.12% 2.29%Aug 2014 0.96% 0.20% 1.16% 2.40%Sep 2014 1.00% 0.20% 1.20% 2.50%Oct 2014 1.04% 0.20% 1.24% 2.60%Nov 2014 1.08% 0.20% 1.28% 2.71%Dec 2014 1.13% 0.20% 1.33% 2.81%Jan 2015 1.17% 0.20% 1.37% 2.92%Feb 2015 1.21% 0.20% 1.41% 3.02%Mar 2015 1.25% 0.20% 1.45% 3.13%Average 1.22% 2.55%
Apr 2015 1.40% 0.20% 1.60% 3.49%May 2015 1.54% 0.20% 1.74% 3.85%Jun 2015 1.69% 0.20% 1.89% 4.22%Jul 2015 1.83% 0.20% 2.03% 4.58%Aug 2015 1.98% 0.20% 2.18% 4.95%Sep 2015 2.13% 0.20% 2.33% 5.31%Oct 2015 2.27% 0.20% 2.47% 5.68%Nov 2015 2.42% 0.20% 2.62% 6.04%Dec 2015 2.56% 0.20% 2.76% 6.41%Jan 2016 2.71% 0.20% 2.91% 6.77%Feb 2016 2.85% 0.20% 3.05% 7.14%Mar 2016 3.00% 0.20% 3.20% 7.50%Average 2.40% 5.49%
30 Year Treas SpreadInterest
RateNov-12 3.40% 145.00 4.85%Aug-13 3.55% 145.00 5.00%Oct-14 3.80% 145.00 5.25%May-15 4.05% 145.00 5.50%
Note: Issuance expense is estimated to be 0.75% in addition to the above estimated rates.* Variable rate tax-exempt debt interest rates are projected assuming auction marketscontine to fail. Under these conditions, tax exempt debt rates are set at 2.5 times LIBOR
Exhibit __ (MAH-2) Page 1 of 5
45
FY14
For
ecas
tFY
15 F
orec
ast
FY16
For
ecas
t
Ope
ratin
g R
even
ue3,
307,
449
3,41
1,30
1
3,
487,
388
Oth
er R
even
ue6,
424
15,0
57
24,3
56
Tota
l Rev
enue
3,31
3,87
3
3,
426,
358
3,51
1,74
4
Staf
f Cos
ts49
2,82
6
500,
143
50
8,33
6
Oth
er E
xpen
ses
710,
532
74
5,91
5
753,
102
Pu
rcha
ses P
ower
- El
ectri
city
740,
065
77
8,40
7
801,
458
D
epre
ciat
ion
231,
297
24
4,91
2
258,
983
A
mor
tizat
ion
7
1,
327
2,64
8
Pu
rcha
sed
Gas
305,
852
31
2,52
0
322,
800
Pr
oper
ty T
axes
258,
049
27
3,04
6
289,
343
To
tal O
pera
ting
Expe
nses
2,73
8,62
8
2,
856,
269
2,93
6,67
1
Ope
ratin
g In
com
e57
5,24
5
570,
089
57
5,07
3
Net
Inte
rest
(76,
516)
(9
5,97
5)
(129
,276
)
-
-
-
Ea
rnin
gs B
efor
e Ta
x49
8,72
9
474,
114
44
5,79
7
Cur
rent
Tax
es13
1,39
8
127,
763
11
6,94
1
Def
erre
d Ta
xes
61,6
67
56,5
45
58,1
27
Tota
l Tax
es19
3,06
5
184,
307
17
5,06
8
Earn
ings
Afte
r Tax
es30
5,66
4
289,
806
27
0,72
9
Pref
erre
d D
ivid
ends
1,06
0
1,
060
1,06
0
N
et In
com
e A
ttrib
uted
to S
hare
hold
ers
304,
604
28
8,74
6
269,
669
Com
mon
Div
iden
ds12
5,00
0
175,
000
-
Prof
it af
ter D
ivid
ends
179,
604
113,
746
269,
669
Nia
gara
Moh
awk
Pow
er C
orpo
ratio
n d/
b/a
Nat
iona
l Gri
d In
com
e St
atem
ent
(In
thou
sand
s of d
olla
rs)
Exh
ibit_
_ (M
AH
-2)
Pag
e 2
Exhibit __ (MAH-2) Page 2 of 5
46
FY
14 F
orec
ast
FY
15 F
orec
ast
FY
16 F
orec
ast
ASS
ET
S
Cur
rent
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts12
,628
12
,628
12
,628
R
estri
cted
cas
h18
,070
18
,070
18
,070
A
ccou
nts r
ecei
vabl
e62
6,34
8
63
9,93
9
64
6,66
5
A
llow
ance
for d
oubt
ful a
ccou
nts
(208
,027
)
(2
15,1
07)
(220
,829
)
A
ccou
nts r
ecei
vabl
e fr
om a
ffili
ates
1,36
7
1,
367
1,36
7
In
terc
ompa
ny m
oney
poo
l73
73
73
U
nbill
ed re
venu
es15
3,57
3
15
6,04
2
15
6,56
8
G
as in
stor
age,
at a
vera
ge c
ost
1,25
0
1,
625
2,06
0
M
ater
ials
and
supp
lies,
at a
vera
ge c
ost
30,6
82
30,6
82
30,6
82
Der
ivat
ive
cont
ract
s-
-
-
Reg
ulat
ory
asse
ts -
curr
ent
328,
635
328,
635
328,
635
Mis
c. c
urre
nt a
nd a
ccru
ed a
sset
s17
6,68
2
17
6,64
7
17
6,64
7
D
isco
ntin
ued
asse
ts h
eld
for s
ale
-
-
-
T
otal
cur
rent
ass
ets
1,14
1,28
1
1,15
0,60
0
1,15
2,56
6
Equ
ity in
vest
men
ts a
nd o
ther
5,36
2
5,
362
5,36
2
Prop
erty
Plan
t and
Fix
ed A
sset
s10
,718
,528
11
,285
,418
11
,872
,291
D
epre
ciat
ion
& a
mor
tizat
ion
(3,1
92,6
40)
(3
,380
,934
)
(3,5
77,7
98)
7,52
5,88
8
7,90
4,48
4
8,29
4,49
3
T
otal
def
erre
d ch
arge
s1,
087,
238
88
5,01
4
67
9,03
4
Tot
al A
sset
s9,
759,
769
9,
945,
460
10
,131
,456
Nia
gara
Moh
awk
Pow
er C
orpo
ratio
n d/
b/a
Nat
iona
l Gri
d B
alan
ce S
heet
(In
thou
sand
s of d
olla
rs)
Exh
ibit_
_ (M
AH
-2)
Pag
e 3
Exhibit __ (MAH-2) Page 3 of 5
47
FY
14 F
orec
ast
FY
15 F
orec
ast
FY
16 F
orec
ast
Nia
gara
Moh
awk
Pow
er C
orpo
ratio
n d/
b/a
Nat
iona
l Gri
d B
alan
ce S
heet
(In
thou
sand
s of d
olla
rs)
LIA
BIL
ITIE
S A
ND
CA
PIT
AL
IZA
TIO
N
Cur
rent
Lia
bilit
ies
Acc
ount
s pay
able
289,
902
291,
693
294,
032
Acc
ount
s pay
able
aff
iliat
es29
,107
29
,107
29
,107
C
urre
nt p
ortio
n of
long
-term
deb
t50
0,00
0
10
0,00
0
-
Taxe
s acc
rued
366,
913
462,
749
474,
165
Cus
tom
er d
epos
its37
,559
37
,559
37
,559
In
tere
st a
ccru
ed43
,921
50
,599
52
,703
In
terc
ompa
ny m
oney
poo
l20
2,59
7
15
3,09
4
31
9,03
2
O
ther
cur
rent
liab
ilitie
s11
5,32
4
11
9,57
0
11
6,96
9
1,
585,
323
1,
244,
372
1,
323,
566
T
otal
def
erre
d cr
edits
and
oth
er li
abili
ties
2,17
1,24
2
1,93
4,03
5
1,67
1,06
8
Cap
italiz
atio
nC
omm
on st
ock
($1
per s
hare
)18
7,36
5
18
7,36
5
18
7,36
5
Pa
id-in
cap
ital
2,91
3,14
0
2,91
3,14
0
2,91
3,14
0
Ret
aine
d ea
rnin
gs97
5,40
7
1,
089,
154
1,
358,
823
A
ccum
ulat
ed o
ther
com
preh
ensi
ve lo
ss(1
,385
)
(1,2
82)
(1
,183
)
T
otal
com
mon
shar
ehol
ders
' equ
ity4,
074,
528
4,
188,
377
4,
458,
145
C
umul
ativ
e pr
efer
red
stoc
k, p
ar v
alue
$10
0 pe
r sha
re28
,985
28
,985
28
,985
Tot
al e
quity
4,10
3,51
2
4,21
7,36
2
4,48
7,13
0
Long
-term
deb
t1,
399,
691
2,
049,
691
2,
149,
691
Lo
ng-te
rm d
ebt t
o af
filia
tes
500,
000
500,
000
500,
000
Tot
al C
apita
lizat
ion
6,00
3,20
3
6,76
7,05
3
7,13
6,82
1
Tot
al L
iabi
litie
s and
Cap
italiz
atio
n9,
759,
769
9,
945,
460
10
,131
,456
Exh
ibit_
_ (M
AH
-2)
Pag
e 4
Exhibit __ (MAH-2) Page 4 of 5
48
FY
14 F
orec
ast
FY
15 F
orec
ast
FY
16 F
orec
ast
Ope
ratin
g ac
tiviti
es:
Prof
it A
fter T
axes
305,
664
28
9,80
6
270,
729
A
djus
tmen
ts to
reco
ncile
net
inco
me
to n
et c
ash
prov
ided
by
oper
atin
g ac
tiviti
es:
Net
(inc
ome)
loss
from
dis
cont
inue
d op
erat
ions
Dep
reci
atio
n an
d am
ortiz
atio
n23
1,29
7
244,
912
25
8,98
3
Am
ortiz
atio
n of
stra
nded
cos
ts a
nd d
efer
rals
7
1,
327
2,64
8
Pr
ovis
ion
for d
efer
red
inco
me
taxe
s61
,667
56
,545
58
,127
Pe
nsio
ns, d
efer
rals
and
oth
er n
on-c
ash
item
s(1
77,0
71)
(93,
424)
(1
18,3
63)
Fund
s fro
m O
pera
tions
421,
565
49
9,16
6
472,
124
C
hang
es in
ope
ratin
g as
sets
and
liab
ilitie
s:C
hang
es in
Wor
king
Cap
ital I
tem
s15
3,11
1
94,9
52
13,8
92
Cha
nges
in O
ther
net
ope
ratin
g as
sets
and
liab
ilitie
s(2
,041
)
4,
954
(1,9
01)
Net
cas
h pr
ovid
ed b
y op
erat
ing
activ
ities
572,
634
59
9,07
1
484,
115
Inve
stin
g ac
tiviti
es:
Cap
ital e
xpen
ditu
res
(541
,820
)
(5
66,8
90)
(586
,873
)
O
ther
, inc
ludi
ng c
ost o
f rem
oval
(55,
521)
(5
6,61
8)
(62,
120)
N
et c
ash
used
in in
vest
ing
activ
ities
(597
,341
)
(6
23,5
08)
(648
,993
)
Fina
ncin
g ac
tiviti
es:
Div
iden
ds p
aid
on c
omm
on a
nd p
refe
rred
stoc
k(1
26,0
60)
(176
,060
)
(1
,060
)
D
ebt i
ssua
nce
cost
-
-
-
Paym
ents
on
long
-term
deb
t-
-
-
Pr
ocee
ds fr
om lo
ng-te
rm d
ebt
-
250,
000
-
C
hang
es in
inte
rcom
pany
mon
eypo
ol15
0,76
7
(49,
503)
16
5,93
8
Buy
back
of c
omm
on st
ock
-
-
-
Net
(dec
reas
e) in
crea
se in
ext
erna
l sho
rt-te
rm d
ebt
-
-
-
Net
cas
h us
ed in
fina
ncin
g ac
tiviti
es24
,707
24
,437
16
4,87
8
Net
incr
ease
in c
ash
and
cash
equ
ival
ents
-
-
-
Cas
h an
d ca
sh e
quiv
alen
ts, b
egin
ning
of p
erio
d 12
,628
12
,628
12
,628
C
ash
and
cash
equ
ival
ents
, end
of p
erio
d12
,628
12
,628
12,6
28
Nia
gara
Moh
awk
Pow
er C
orpo
ratio
n d/
b/a
Nat
iona
l Gri
d St
atem
ent o
f Cas
h Fl
ow(I
n th
ousa
nds o
f dol
lars
)
Exh
ibit_
_ (M
AH
-2)
Pag
e 5
Exhibit __ (MAH-2) Page 5 of 5
49
E
xhibit __ (MA
H-3)
Testimony of Mustally A. Hussain
Exhibit __ (MAH-3)
S&P and Moody’s Credit Reports and Methodology
50
Exhibit __ (MAH-3) Page 1 of 51
51
Exhibit __ (MAH-3) Page 2 of 51
52
Exhibit __ (MAH-3) Page 3 of 51
53
Exhibit __ (MAH-3) Page 4 of 51
54
Exhibit __ (MAH-3) Page 5 of 51
55
Exhibit __ (MAH-3) Page 6 of 51
56
Credit Opinion: Niagara Mohawk Power Corporation
Global Credit Research - 09 Aug 2011
Syracuse, New York, United States
Ratings
Category Moody's RatingOutlook StableIssuer Rating A3Senior Secured A2Senior Unsecured A3Pref. Stock Baa2Ult Parent: National Grid PlcOutlook StableIssuer Rating Baa1Senior Unsecured Baa1Commercial Paper P-2Other Short Term (P)P-2Parent: National Grid USAOutlook StableIssuer Rating Baa1Senior Unsecured Baa1Commercial Paper P-2
Contacts
Analyst PhoneNeil Griffiths-Lambeth/London 44.20.7772.5454Kevin G. Rose/New York 1.212.553.1653Monica Merli/London
Key Indicators
Niagara Mohawk Power Corporation[1]3/31/2010 3/31/2009 3/31/2008 3/31/2007 3/31/2006
CFO pre-WC + Interest/ Interest 13.5x 5.7x 4.9x 5.5x 4.4xCFO pre-WC / Debt 41.6% 27.9% 27.5% 31.1% 21.4%CFO pre-WC - Dividends / Debt 23.6% 27.9% 27.6% 31.1% 21.4%Debt / Capitalization 32.4% 29.8% 34.5% 36.5% 42.3%
[1] All ratios are calculated using Moody's Standard Adjustments.
Note: For definitions of Moody's most common ratio terms please see the accompanying User's Guide.
Opinion
Corporate Profile
Niagara Mohawk ("NiMo") is a wholly owned direct subsidiary of National Grid USA ("NG USA" rated Baa1) which is in turn a subsidiary ofNational Grid plc ("National Grid" rated Baa1/Prime-2), a holding company headquartered in the United Kingdom for a range of largely regulatedbusinesses operating in the United Kingdom and United States.
NiMo is a regulated energy delivery business operating in New York State. The company provides electric service to approximately 1.6 millionelectric customers in the areas of eastern, central, northern and western New York and sells, distributes and transports natural gas toapproximately 0.6 million gas customers in the areas of central, northern and eastern New York.
The outlook on all of the ratings is stable.
Recent Developments
Exhibit __ (MAH-3) Page 7 of 51
57
National Grid reported its preliminary results for 2010/11 on 19 May 2011, announcing:
- Pre-tax profit up 25%
- Operating profit up 15%
- Capital investment of £3.6 billion including £2.1 billion in the UK regulated businesses
Moody's notes that timing differences, accounting for GBP433 million, were a significant contributor to the GBP476 million growth in operatingprofit for 2010/11. However, net regulated income also increased, by GBP203 million, due to the emerging benefit of recent rate casesettlements for the group's US operations together with customer growth and higher volumes in the US. With low inflation/deflation during 2009limiting allowed tariff increases under the regulatory RPI-X formula, operating profit for the UK transmission business grew by 4% whilst that forgas distribution fell by 2%.
With gains in the US being offset, to a large extent by higher post-retirement costs (up by GBP89 million) and depreciation (up by GBP41million), the increase in operating profit on a constant currency basis and excluding timing differences was only around 1%.
In January 2011, the New York Public Service Commission ("NYPSC") ruled on a NiMo's request for an increase in rates for its electricitybusiness, increasing base delivery rates by USD119 million with effect from the beginning of the year. However, the increase for 2011 is entirelyoffset by extending the recovery period of certain deferred costs. In addition, and following unfortunate errors by National Grid in its filing, USD50million of the allowed increase was approved on a temporary basis pending the outcome of a review of affiliate service company costs.
In January 2011, National Grid announced a restructuring of its US operations and an efficiency programme targeting a USD200 million perannum cost reduction which it expects to achieve by the end of the 2011/12 financial year.
Rating Rationale
Moody's rating assessment of NiMo is based on the rating agency's methodologies for (i) Regulated Electric and Gas Utilities published inAugust 2009 and (ii) complex European utility groups (see European Regulated Utility Groups: Methodology Update, January 2007). The ratingreflects its favourable business and operating risk profile as an energy delivery business and the regulatory framework under which it operatesbut also the level of debt, an ongoing capital investment programme and likely dividend payments to NG USA. NiMo's ratings are also subject tothe cap of the overall credit quality of the National Grid group, which we currently assess in low single-A.
DETAILED RATING CONSIDERATIONS
The following factors influence NiMo's ratings under the Regulated Electric and Gas Utilities methodology:
FACTOR 1: REGULATORY FRAMEWORK
NiMo is subject to regulation by the NYPSC and the Federal Energy Regulatory Commission ("FERC") with respect to the rates that thecompany charges its customers based on a methodology that establishes prices based primarily on costs. The NYPSC regulates retailservices, including the distribution and sale of natural gas and electricity to consumers. FERC regulates interstate natural gas transportationand electricity transmission and has jurisdiction over certain wholesale natural gas sales and wholesale electric sales.
Moody's has a generally favourable view of the regulatory environment in which NiMo operates. However, we also consider that the USframework poses a number of challenges for the utilities and is less attractive than that covering National Grid's regulated UK operations.
There are similarities between the regulatory regimes in the US and UK. For example, each is based on a building block approach intended toallow the utility to recover its operating costs, pay tax, receive regulatory depreciation and earn a return on past investments. However, there areimportant differences: (i) in many states, the system is based on historic rather than prospective costs as in the UK; (ii) returns are determinedon a nominal basis in the US but a real basis in the UK; (iii) US regulators take account of the actual rather than a notional capital structure; and(iv) US utilities are able to make full or partial filings as necessary rather than being bound by a fixed regulatory timetable as in the UK. Finally,the US system is quasi-judicial with multiple parties including government bodies and officials, consumer advocacy groups and various energyconsumers, who have differing concerns, but generally a common objective of limiting rate increases.
Whilst the regulatory framework in the US is, in general, well developed, it can be politically charged and challenging for the utility. This is nothelped by the fact that transmission/distribution utilities often bill customers for both the cost of transmission/distribution and the energy thatthey consume and regulators look at the total impact on bills of each decision that they make. Particularly when general economic conditionsare difficult, it can be hard for regulated US utilities to achieve support for planned investments and what they may consider an adequate level ofreturns in new rate case applications.
We assign NiMo a score of Baa for the Regulatory Framework sub-factor under the Regulated Electric and Gas Utilities methodologyrecognising the established framework but also the associated challenges for the regulated companies. This is in line with the score assignedto many of the rated US utilities for this sub-factor but below the Aa assigned to the parent company, National Grid plc. The parent companyscore reflects the regulatory framework for the US subsidiaries and also Moody's favourable view of the regime which applies to the group's UKoperations.
FACTOR 2: ABILITY TO RECOVER COSTS AND EARN RETURNS
NiMo is subject to a retail gas rate plan and a retail electricity rate plan.
A two year rate plan for gas came into effect in May 2009 and provided for a 10.2% return on equity ("ROE"), revenue decoupling and recoveryof commodity related bad debt expenses. The NYPSC subsequently approved an increase in rates of circa USD14 million, effective from May2010, to cover increases in certain costs.
In January 2010, NiMo filed a rate proposal for its electricity business which included a revenue increase of USD369 million and a ROE of 11.1%effective from 1 January 2011. In January 2011, the NYPSC granted an increase in revenue of approximately USD112 million, including recoveryof USD40 million in competitive transition charges, with a 9.1% ROE. The company subsequently accepted the option of receiving a 9.3%return, which would result in a revenue requirement increase of approximately USD119 million, however, an amount equivalent to 0.2% ROE,
Exhibit __ (MAH-3) Page 8 of 51
58
approximately USD 7 million, is refundable to customers if NiMo files for new rates before January 2012.
The electric rate case filing led to a number of unwelcome headlines for National Grid regarding the misallocation of expenses and, asmentioned, USD50 million of the allowed increase was approved on a temporary basis pending a review of affiliate company service costs. InFebruary 2011, the NYPSC hired a management consulting firm to perform an audit of National Grid's affiliate cost allocation, policies andprocedures to determine if any service company transactions have resulted in unreasonable costs to New York customers. A report of thisreview is anticipated in November 2011 and the investigation could be expanded to prior years if a material amount of misallocated orinappropriate costs are indentified. An independent review commissioned by National Grid concluded that deliberate misallocation of expenseshad not occurred.
In line with the timetable agreed with the regulator, NiMo recently filed for the recovery of USD236 million of deferred expenses and capex for itselectric business. If approved, the rate increase would come into effect in January 2012.
For 2010, NiMo achieved a ROE of 6.8% for its electric business and 6.2% for gas.
We assign a score of Baa for this sub-factor under the Regulated Electric and Gas Utilities methodology, recognising that rate reviews for NiMoare conducted within an established framework but are nevertheless prone to political interference and challenge resulting in a degree ofuncertainty about the company's ability to recover its costs and earn the targeted level of returns. This scoring is in line with that for many otherrated US utilities but below the single-A assigned to other NG USA subsidiaries, which benefit from recent rate case outcomes, reflecting thepending rate case for electricity.
FACTOR 3: DIVERSIFICATION
Diversification is considered under the Methodology as, in general, a balance among several different businesses, geographic regions orregulatory regimes reduces the risk that a company will experience a sudden or rapid deterioration in its overall creditworthiness because of anadverse development specific to any one part of its operation.
We assign a score of Baa to NiMo under this sub-factor recognising the scale of the business but also the geographic and regulatoryconcentration. This scoring is in line with that assigned to a number of the larger US utilities but below the Aa scoring for National Grid as agroup.
FACTOR 4: FINANCIAL STRENGTH AND LIQUIDITY
Moody's ratings for NiMo acknowledge the historical strength of its key financial metrics. New rate plans should allow the company to increaseearnings but we note that achieved returns have fallen well short of the allowed ROE in both gas and electric and also that, as previouslymentioned, the allowed increase in rates for 2011 is entirely offset by an extension of the recovery period for deferred costs. NiMo maps to ascore of single-A for financial strength and liquidity.
Liquidity
NiMo maintains a sufficient level of liquidity primarily by supplementing its internally generated cashflow and debt issuance through participationin the NG USA money pool, the purpose of which is to utilise family cash resources more effectively and reduce the need for external short-termborrowing. Participating subsidiary companies and the parent contribute their excess cash to the pool which is first used to meet the short-termborrowing needs of eligible subsidiaries. Companies borrowing from the pool pay rates linked to A1/P-1 30-day commercial paper rates. Anyremaining cash is typically invested into Aaa rated money funds with same day liquidity. As a measure of additional security, NG USA's parent,the UK-based National Grid plc, has the ability to increase the amount of cash in the pool through direct loans to NG USA. Alternatively, NG USAcan also issue commercial paper and medium term notes in lieu of or to supplement direct loans from the UK parent.
We note the USD500 million issue of Senior Notes by the company in September 2009 and the USD750 million issue, also of Senior Notes, inAugust 2009.
As of March 31, 2011, NiMo had about USD10 million of unrestricted cash on hand. The company had short-term moneypool borrowings ofUSD166 million but also had net accounts receivable from affiliates of USD31 million in respect of certain shared services. NiMo's next long-term debt maturity is not until October 2013.
Rating Outlook
The outlook for NiMo's ratings is stable reflecting Moody's outlook on the credit quality of the National Grid group as a whole. All ratings forNational Grid and its rated subsidiaries were affirmed in May 2010 following the company's announcement of its preliminary results for 2009/10,the new capital investment programme and rights issue.
What Could Change the Rating - Up
The rights issue leaves National Grid and its subsidiaries better positioned in their rating categories. Moody's notes however the large capitalinvestment programme for the UK and the possibility of additional investment in the US (above and beyond what is currently planned) which willmost likely reduce financial flexibility over time. The rating agency further considers that the group will favour using free cash flow to fundshareholder distributions and/or support growth rather than to reduce gearing. On this basis, upward rating pressure for National Grid and itssubsidiaries is considered unlikely in the medium term.
What Could Change the Rating - Down
A deterioration in the consolidated credit quality of the National Grid group, even if unrelated to NiMo, which resulted in the consolidated creditprofile being viewed as below single-A, would be likely to negatively impact NiMo's ratings. NiMo's ratings could also come under downwardpressure if the ratio of CFO Pre-W/C to Debt appeared likely to remain below mid-teens over the medium term.
Rating Factors
Exhibit __ (MAH-3) Page 9 of 51
59
Niagara Mohawk Power Corporation550000 Regulated Electric and Gas Utilities Industry [1][2] Aaa Aa A Baa Ba BFactor 1: Regulatory Framework (25%) a) Regulatory Framework x Factor 2: Ability To Recover Costs And Earn Returns (25%) a) Ability To Recover Costs And Earn Returns x Factor 3: Diversification (10%) a) Market Position x b) Generation and Fuel Diversity Factor 4: Financial Strength, Liquidity And Key Financial Metrics (40%) a) Liquidity x b) CFO pre-WC + Interest/ Interest (3 Year Avg) x c) CFO pre-WC / Debt (3 Year Avg) x d) CFO pre-WC - Dividends / Debt (3 Year Avg) x e) Debt/Capitalization (3 Year Avg) x Rating: a) Indicated Rating from Grid A3 b) Actual Rating Assigned A3
[1] All ratios are calculated using Moody's Standard Adjustments. [2] As of 3/31/2010; Source: Moody's Financial Metrics
© 2011 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THERELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKESECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITSCONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSSIN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUTNOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARENOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTEINVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TOPURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THESUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGSWITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDYAND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, ORSALE.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO,COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED,REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD,OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM ORMANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTENCONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate andreliable. Because of the possibility of human or mechanical error as well as other factors, however, all informationcontained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so thatthe information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to bereliable, including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor andcannot in every instance independently verify or validate information received in the rating process. Under nocircumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in partcaused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency withinor outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with theprocurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any suchinformation, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever(including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages,resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections,and other observations, if any, constituting part of the information contained herein are, and must be construed solelyas, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities.Each user of the information contained herein must make its own study and evaluation of each security it mayconsider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY,TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANYSUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM ORMANNER WHATSOEVER.
Exhibit __ (MAH-3) Page 10 of 51
60
MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that mostissuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) andpreferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and ratingservices rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policiesand procedures to address the independence of MIS's ratings and rating processes. Information regarding certainaffiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MISand have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually atwww.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and ShareholderAffiliation Policy."
Any publication into Australia of this document is by MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be providedonly to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to accessthis document from within Australia, you represent to MOODY'S that you are, or are accessing the document as arepresentative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectlydisseminate this document or its contents to "retail clients" within the meaning of section 761G of the CorporationsAct 2001.
Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody's Japan K.K. (“MJKK”)are MJKK's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-likesecurities. In such a case, “MIS” in the foregoing statements shall be deemed to be replaced with “MJKK”. MJKK is awholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody’sOverseas Holdings Inc., a wholly-owned subsidiary of MCO.
This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securitiesof the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors tomake any investment decision based on this credit rating. If in doubt you should contact your financial or otherprofessional adviser.
Exhibit __ (MAH-3) Page 11 of 51
61
Exhibit __ (MAH-3) Page 12 of 51
62
Exhibit __ (MAH-3) Page 13 of 51
63
Exhibit __ (MAH-3) Page 14 of 51
64
Exhibit __ (MAH-3) Page 15 of 51
65
Exhibit __ (MAH-3) Page 16 of 51
66
Exhibit __ (MAH-3) Page 17 of 51
67
www.moodys.com
Infrastructure Finance Moody’s GlobalRating
Methodology
Table of Contents: Summary 1
About the Rated Universe 2 About this Rating Methodology 4 The Key Rating Factors 6
Rating Factor 1: Regulatory Framework (25%) 6 Rating Factor 2: Ability to Recover Costs and Earn Returns (25%) 7 Rating Factor 3 - Diversification (10%) 9 Rating Factor 4 – Financial Strength and Liquidity (40%) 10
Rating Methodology Assumptions and Limitations, and other Rating Considerations 13 Conclusion: Summary of the Grid- Indicated Rating Outcomes 14 Appendix A: Regulated Electric and Gas Utilities Methodology Factor Grid 15 Appendix B: Methodology Grid-Indicated Ratings 18 Appendix C: Observations and Outliers for Grid Mapping 20 Appendix D: Definition of Ratios 25 Appendix E: Industry Overview 26 Appendix F: Key Rating Issues Over the Intermediate Term 29 Appendix G: Regional and Other Considerations 30 Appendix H: Treatment of Power Purchase Agreements (“PPA’s”) 31 Moody’s Related Research 33
Analyst Contacts:
New York 1.212.553.1653
Michael G. Haggarty Vice President - Senior Credit Officer
Mitchell Moss Associate Analyst
W. Larry Hess Team Managing Director
Thomas Keller Group Managing Director
Bart Oosterveld Chief Credit Officer, Public, Project & Infrastructure Finance
(Continued on back page)
August 2009
Regulated Electric and Gas Utilities Summary
This rating methodology provides guidance on Moody’s approach to assigning credit ratings to electric and gas utility companies worldwide whose credit profile is influenced to a large degree by the presence of regulation. It replaces the Global Regulated Electric Utilities methodology published in March 2005 and the North American Regulated Gas Distribution Industry (Local Distribution Companies) methodology published in October 2006. While reflecting similar core principles as these previous methodologies, this updated framework incorporates refinements that better reflect the changing dynamics of the regulated electric and gas industry and the way Moody’s applies its industry methodologies.
The goal of this rating methodology is to assist investors, issuers, and other interested parties in understanding how Moody’s arrives at company-specific ratings, what factors we consider most important for this sector, and how these factors map to specific rating outcomes. Our objective is for users of this methodology to be able to estimate a company’s ratings (senior unsecured ratings for investment-grade issuers and Corporate Family Ratings for speculative-grade issuers) within two alpha-numeric rating notches.
Regulated electric and gas companies are a diverse universe in terms of business model (ranging from vertically integrated to unbundled generation, transmission and/or distribution entities) and regulatory environment (ranging from stable and predictable regulatory regimes to those that are less developed or undergoing significant change). In seeking to differentiate credit risk among the companies in this sector, Moody’s analysis focuses on four key rating factors that are central to the assignment of ratings for companies in the sector. The four key rating factors encompass nine specific elements (or sub-factors), each of which map to specific letter ratings (see Appendix A). The four factors are as follows:
1. Regulatory Framework 2. Ability to Recover Costs and Earn Returns 3. Diversification 4. Financial Strength and Liquidity
Exhibit __ (MAH-3) Page 18 of 51
68
2 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
This methodology pertains to regulated electric and gas utilities and excludes regulated electric and gas networks (companies primarily engaged in the transmission and/or distribution of electricity and/or natural gas that do not serve retail customers) and unregulated utilities and power companies, which are covered by separate rating methodologies. Municipal utilities and electric cooperatives are also excluded and covered by separate rating methodologies.
In Appendix A of this methodology, we have included a detailed rating grid for the companies covered by the methodology. For each company, the grid maps each of these key rating factors and shows an indicated alpha-numeric rating based on the results from the overall combination of the factors (see Appendix B). We note, however, that many companies will not match each dimension of the analytical framework laid out in the rating grid exactly and that from time to time a company’s performance on a particular rating factor may fall outside the expected range for a company at its rating level. These companies are categorized as “outliers” for that rating factor. We discuss some of the reasons for these outliers in this methodology as well as in published credit opinions and other company-specific analysis.
The purpose of the rating grid is to provide a reference tool that can be used to approximate credit profiles within the regulated electric and gas utility sector. The grid provides summarized guidance on the factors that are generally most important in assigning ratings to the sector. While the factors and sub-factors within the grid are designed to capture the fundamental rating drivers for the sector, this grid does not include every rating consideration and does not fit every business model equally. Therefore, we outline additional considerations that may be appropriate to apply in addition to the four rating factors. Moody’s also assesses other rating factors that are common across all industries, such as event risk, off-balance sheet risk, legal structure, corporate governance, and management experience and credibility. Furthermore, most of our sub-factor mapping uses historical financial results to illustrate the grid while our ratings also consider forward looking expectations. As such, the grid-indicated rating is not expected to always match the actual rating of each company. The text of the rating methodology provides insights on the key rating considerations that are not represented in the grid, as well as the circumstances in which the rating effect for a factor might be significantly different from the weight indicated in the grid.
Readers should also note that this methodology does not attempt to provide an exhaustive list of every factor that can be relevant to a utility’s ratings. For example, our analysis covers factors that are common across all industries (such as coverage metrics, debt leverage, and liquidity) as well as factors that can be meaningful on a company or industry specific basis (such as regulation, capital expenditure needs, or carbon exposure).
This publication includes the following sections:
About the Rated Universe: An overview of the regulated electric and gas industries
About the Rating Methodology: A description of our rating methodology, including a detailed explanation of each of the key factors that drive ratings
Assumptions and Limitations: Comments on the rating methodology’s assumptions and limitations, including a discussion of other rating considerations that are not included in the grid
In the appendices, we also provide tables that illustrate the application of the methodology grid to 30 representative electric and gas utility companies with explanatory comments on some of the more significant differences between the grid-implied rating and our actual rating (Appendix C). We also provide definitions of key ratios (Appendix D), an industry overview (Appendix E) and a discussion of the key issues facing the industry over the intermediate term (Appendix F) and regional considerations (Appendix G).
About the Rated Universe
The rating methodology covers investor-owned and commercially oriented government owned companies worldwide that are engaged in the production, transmission, distribution and/or sale of electricity and/or natural gas. It covers a wide variety of companies active in the sector, including vertically integrated utilities, transmission and distribution companies, some U.S. transmission-only companies, and local gas distribution companies (LDCs). For the LDCs, we note that this methodology is concerned principally with operating utilities regulated by their local jurisdictions and not with gas companies that have significant non-utility
Exhibit __ (MAH-3) Page 19 of 51
69
3 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
businesses1. In addition, this methodology includes both holding companies as well as operating companies. For holding companies, actual ratings may be lower than methodology grid-implied ratings due to the structural subordination of the holding company debt to the operating company debt. In order for a utility to be covered by this methodology, the company must be an investor-owned or commercially oriented government owned entity and be subject to some degree of government regulation or oversight. This methodology excludes regulated electric and gas networks, electric generating companies2 and independent power producers operating predominantly in unregulated power markets, municipally owned utilities, electric cooperative utilities, and power projects, which are covered in separate rating methodologies.
The rated universe includes approximately 250 entities that are either utility operating companies or a parent holding company with one or more utility company subsidiaries that operate predominantly in the electric and gas utility business. They account for about US$650 billion of total outstanding long-term debt instruments. In general, ratings used in this methodology are the Senior Unsecured (“SU”) rating for investment grade companies, the Corporate Family Rating (“CFR”) for non-investment grade companies, and the Baseline Credit Assessment (“BCA”) for Government Related Issuers (GRI). A subset of 30 of these entities is included in the methodology, representing a sampling of the universe to which this methodology applies.
Geographically, this methodology covers companies in the Americas, Europe, Middle East, Africa, Japan, and the Asia/Pacific region. The ratings spectrum for the sector ranges from Aaa to B3, with the actual rating distribution of the issuers included (both holding companies and operating companies) shown on the following table:
Electric Utilities' Senior Unsecured Ratings Distribution
0
10
20
30
40
50
60
Aaa Aa1 Aa2 Aa3 A1 A2 A3Baa
1Baa
2Baa
3Ba1 Ba2 Ba3 B1 B2 B3
Although all of these companies are affected to some degree by government regulation or oversight, country-by-country regulatory differences and cultural and economic characteristics are also important credit considerations. There is little consistency in the approach and application of regulatory frameworks around the world. Some regulatory frameworks are highly supportive of the utilities in their jurisdictions, in some cases offering implied sovereign support to ensure reliability of electric supply. Other regulatory frameworks are less supportive, more unpredictable or affected by political influence that can increase uncertainty and negatively affect overall credit quality.
1 These companies are assessed under the rating methodology “North American Diversified Natural Gas Transmission and Distribution Companies”,
March 2007. 2 The six Korean generation companies are included in this methodology as they are subject to regulation and Moody’s views them and their 100% parent
and sole off-taker KEPCO on a consolidated basis. The Brazilian generation companies are included as they are also subject to regulatory intervention.
Exhibit __ (MAH-3) Page 20 of 51
70
4 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
About this Rating Methodology
Moody’s approach to rating companies in the regulated electric and gas utility sector, as outlined in this rating methodology, incorporates the following steps:
1. Identification of the Key Rating Factors
In general, Moody’s rating committees for the regulated electric and gas utility sector focus on a number of key rating factors which we identify and quantify in this methodology. A change in one or more of these factors, depending on its weighting, is likely to influence a utility’s overall business and financial risk. We have identified the following four key rating factors and nine sub-factors when assigning ratings to regulated electric and gas utility issuers:
Rating Factor / Sub-Factor Weighting - Regulated Utilities Broad Rating
Factors Broad Rating
Factor Weighting Rating Sub-Factor Sub-Factor Weighting
Regulatory Framework 25% 25%
Ability to Recover Costs and Earn Returns
25% 25%
10% Market Position 5%* Diversification
Generation and Fuel Diversity 5%**
40% Liquidity 10%
CFO pre-WC + Interest/ Interest 7.5%
CFO pre-WC / Debt 7.5%
CFO pre-WC – Dividends / Debt 7.5%
Financial Strength, Liquidity and Key Financial Metrics
Debt/Capitalization or Debt / Regulated Asset Value 7.5%
Total 100% 100%
*10% weight for issuers that lack generation; **0% weight for issuers that lack generation
These factors are critical to the analysis of regulated electric and gas utilities and, in most cases, can be benchmarked across the industry. The discussion begins with a review of each factor and an explanation of its importance to the rating.
2. Measurement of the Key Rating Factors
We next explain the elements we consider and the metrics we use to measure relative performance on each of the four factors. Some of these measures are quantitative in nature and can be specifically defined. However, for other factors, qualitative judgment or observation is necessary to determine the appropriate rating category.
Moody’s ratings are forward looking and attempt to rate through the industry’s characteristic volatility, which can be caused by weather variations, fuel or commodity price changes, cost deferrals, or reasonable delays in regulatory recovery. The rating process also makes extensive use of historic financial statements. Historic results help us understand the pattern of a utility’s financial and operating performance and how a utility compares to its peers. While rating committees and the rating process use both historical and projected financial results, this document makes use only of historic data, and does so solely for illustrative purposes. All financial measures incorporate Moody’s standard adjustments to income statement, cash flow statement, and balance sheet amounts for (among other things) underfunded pension obligations and operating leases.
3. Mapping Factors to Rating Categories
After identifying the measurement criteria for each factor, we match the performance of each factor and sub-factor to one of Moody’s broad rating categories (Aaa, Aa, A, Baa, Ba, and B). In this report, we provide a
Exhibit __ (MAH-3) Page 21 of 51
71
5 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
range or description for each of the measurement criteria. For example, we specify what level of CFO pre-WC plus Interest/Interest is generally acceptable for an A credit versus a Baa credit, etc.
4. Mapping Issuers to the Grid and Discussion of Grid Outliers
For each factor and sub-factor, we provide a table showing how a subset of the companies covered by the methodology maps within the specific factors and sub-factors. We recognize that any given company may perform higher or lower on a given factor than its actual rating level will otherwise indicate. These companies are identified as “outliers” for that factor. A company whose performance is two or more broad rating categories higher than its rating is deemed a positive outlier for that factor. A company whose performance is two or more broad rating categories below is deemed a negative outlier. We also discuss the general reasons for such outliers for each factor.
5. Discussion of Assumptions, Limitations and Other Rating Considerations
This section discusses limitations in the use of the grid to map against actual ratings as well as limitations and key assumptions that pertain to the overall rating methodology.
6. Determining the Overall Grid-Indicated Rating
To determine the overall rating, each of the factors and sub-factors is converted into a numeric value based on the following scale:
Ratings Scale
Aaa Aa A Baa Ba B 1 3 6 9 12 15
Each sub-factor’s numeric value is multiplied by an assigned weight and then summed to produce a composite weighted-average score. The total sum of the factors is then mapped to the ranges specified in the table below, and the indicated alpha-numeric rating is determined based on where the total score falls within the ranges.
Factor Numerics
Composite Rating Indicated Rating Aggregate Weighted Factor Score
Aaa < 1.5 Aa1 1.5 < 2.5 Aa2 2.5 < 3.5 Aa3 3.5 < 4.5 A1 4.5 < 5.5 A2 5.5 < 6.5 A3 6.5 < 7.5
Baa1 7.5 < 8.5 Baa2 8.5 < 9.5 Baa3 9.5 < 10.5 Ba1 10.5 < 11.5 Ba2 11.5 < 12.5 Ba3 12.5 < 13.5 B1 13.5 < 14.5 B2 14.5 < 15.5 B3 15.5 < 16.5
Exhibit __ (MAH-3) Page 22 of 51
72
6 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
For example, an issuer with a composite weighting factor score of 8.2 would have a Baa1 grid-indicated rating. We use a similar procedure to derive the grid-indicated ratings in the tables embedded in the discussion of each of the four broad rating categories.
The Key Rating Factors
Moody’s analysis of electric and gas utilities focuses on four broad factors:
1. Regulatory Framework 2. Ability to Recover Costs and Earn Returns 3. Diversification 4. Financial Strength and Liquidity
Rating Factor 1: Regulatory Framework (25%)
Why it Matters
For a regulated utility, the predictability and supportiveness of the regulatory framework in which it operates is a key credit consideration and the one that differentiates the industry from most other corporate sectors. The most direct and obvious way that regulation affects utility credit quality is through the establishment of prices or rates for the electricity, gas and related services provided (revenue requirements) and by determining a return on a utility’s investment, or shareholder return. The latter is largely addressed in Factor 2, Ability to Recover Cost and Earn Returns, discussed below. However, in addition to rate setting, there are numerous other less visible or more subtle ways that regulatory decisions can affect a utility’s business position. These can include the regulators’ ability to pre-approve recovery of investments for new generation, transmission or distribution; to allow the inclusion of generation asset purchases in utility rate bases; to oversee and ultimately approve utility mergers and acquisitions; to approve fuel and purchased power recovery; and to institute or increase ring-fencing provisions.
How We Measure It for the Grid
For a regulated utility company, we consider the characteristics of the regulatory environment in which it operates. These include how developed the regulatory framework is; its track record for predictability and stability in terms of decision making; and the strength of the regulator’s authority over utility regulatory issues. A utility operating in a stable, reliable, and highly predictable regulatory environment will be scored higher on this factor than a utility operating in a regulatory environment that exhibits a high degree of uncertainty or unpredictability. Those utilities operating in a less developed regulatory framework or one that is characterized by a high degree of political intervention in the regulatory process will receive the lowest scores on this factor. Consideration is given to the substance of any regulatory ring fencing provisions, including restrictions on dividends; restrictions on capital expenditures and investments; separate financing provisions; separate legal structures; and limits on the ability of the regulated entity to support its parent company in times of financial distress. The criteria for each rating category are outlined in the factor description within the rating grid.
For regulated electric utilities with some unregulated operations, consideration will be given to the competitive and business position of these unregulated operations3. Moody’s views unregulated operations that have minimal or limited competition, large market shares, and statutorily protected monopoly positions as having substantially less risk than those with smaller market shares or in highly competitive environments. Those businesses with the latter characteristics usually face a higher likelihood of losing customers, revenues, or market share. For electric utilities with a significant amount of such unregulated operations, a lower score could be assigned to this factor than would be if the utility had solely regulated operations.
Moody’s views the regulatory risk of U.S. utilities as being higher in most cases than that of utilities located in some other developed countries, including Japan, Australia, and Canada The difference in risk reflects our view that individual state regulation is less predictable than national regulation; a highly fragmented market in the U.S. results in stronger competition in wholesale power markets; U.S. fuel and power markets are more
3 For diversified gas companies, the “North American Diversified Natural Gas Transmission and Distribution Company” rating methodology is applied.
Exhibit __ (MAH-3) Page 23 of 51
73
7 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
volatile; there is a low likelihood of extraordinary political action to support a failing company in the U.S.; holding company structures limit regulatory oversight; and overlapping or unclear regulatory jurisdictions characterize the U.S. market. As a result, no U.S. utilities, except for transmission companies subject to federal regulation, score higher than a single A in this factor.
The scores for this factor replace the classifications we had been using to assess a utility’s regulatory framework, namely, the Supportiveness of Regulatory Environment (SRE) framework, outlined in our previous rating methodology (Global Regulated Electric Utilities, March 2005), which we are phasing out. Generally speaking, an SRE 1 score from our previous methodology would roughly equate to Aaa or Aa ratings in this methodology; an SRE 2 score to A or high Baa; an SRE 3 score to low Baa or Ba, and an SRE 4 score to a B. For U.S. and Canadian LDCs, this factor corresponds to the “Regulatory Support” and “Ring-fencing” factors in our previous methodology (North American Regulated Gas Distribution, October 2006).
Factor 1 – Regulatory Framework (25%) Aaa Aa A Baa Ba B
Regulatory framework is fully developed, has a long-track record of being predictable and stable, and is highly supportive of utilities. Utility regulatory body is a highly rated sovereign or strong independent regulator with unquestioned authority over utility regulation that is national in scope.
Regulatory framework is fully developed, has been mostly predictable and stable in recent years, and is mostly supportive of utilities. Utility regulatory body is a sovereign, sovereign agency, provincial, or independent regulator with authority over most utility regulation that is national in scope.
Regulatory framework is fully developed, has above average predictability and reliability, although is sometimes less supportive of utilities. Utility regulatory body may be a state commission or national, state, provincial or independent regulator.
Regulatory framework is a) well-developed, with evidence of some inconsistency or unpredictability in the way framework has been applied, or framework is new and untested, but based on well-developed and established precedents, or b) jurisdiction has history of independent and transparent regulation in other sectors. Regulatory environment may sometimes be challenging and politically charged.
Regulatory framework is developed, but there is a high degree of inconsistency or unpredictability in the way the framework has been applied. Regulatory environment is consistently challenging and politically charged. There has been a history of difficult or less supportive regulatory decisions, or regulatory authority has been or may be challenged or eroded by political or legislative action.
Regulatory framework is less developed, is unclear, is undergoing substantial change or has a history of being unpredictable or adverse to utilities. Utility regulatory body lacks a consistent track record or appears unsupportive, uncertain, or highly unpredictable. May be high risk of nationalization or other significant government intervention in utility operations or markets.
Rating Factor 2: Ability to Recover Costs and Earn Returns (25% )
Why It Matters
Unlike Factor 1, which considers the general regulatory framework under which a utility operates and the overall business position of a utility within that regulatory framework, this factor addresses in a more specific manner the ability of an individual utility to recover its costs and earn a return. The ability to recover prudently incurred costs in a timely manner is perhaps the single most important credit consideration for regulated utilities as the lack of timely recovery of such costs has caused financial stress for utilities on several occasions. For example, in four of the six major investor-owned utility bankruptcies in the United States over the last 50 years, regulatory disputes culminated in insufficient or delayed rate relief for the recovery of costs and/or capital investment in utility plant. The reluctance to provide rate relief reflected regulatory commission concerns about the impact of large rate increases on customers as well as debate about the appropriateness of the relief being sought by the utility and views of imprudency. Currently, the utility industry’s sizable capital expenditure requirements for infrastructure needs will create a growing and ongoing need for rate relief for recovery of these expenditures at a time when the global economy has slowed.
How We Measure It for the Grid
For regulated utilities, the criteria we consider include the statutory protections that are in place to insure full and timely recovery of prudently incurred costs. In its strongest form, these statutory protections provide unquestioned recovery and preclude any possibility of legal or political challenges to rate increases or cost recovery mechanisms. Historically, there should be little evidence of regulatory disallowances or delays to
Exhibit __ (MAH-3) Page 24 of 51
74
8 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
rate increases or cost recovery. These statutory protections are most often found in strongly supportive and protected regulatory environments such as Japan, for example, where the utilities in that country receive a score of Aa for this factor.
More typically, however, and as is characteristic of most utilities in the U.S., the ability to recover costs and earn authorized returns is less certain and subject to public and sometimes political scrutiny. Where automatic cost recovery or pass-through provisions exist and where there have been only limited instances of regulatory challenges or delays in cost recovery, a utility would likely receive a score of A for this factor. Where there may be a greater tendency for a regulator to challenge cost recovery or some history of regulators disallowing or delaying some costs, a utility would likely receive a Baa rating for this factor. Where there are no automatic cost recovery provisions, a history of unfavorable rate decisions, a politically charged regulatory environment, or a highly uncertain cost recovery environment, lower scores for this factor would apply.
For regulated electric utilities that have some unregulated operations, we assess the likelihood that the utility will be able to pass on costs of its unregulated businesses to unregulated customers. Among the criteria we use to judge this factor include the number and types of different businesses the company is in; its market share in these businesses; whether there are significant barriers to entry for new competitors; and the degree to which the utility is vertically integrated. Those utilities with several businesses with large market shares are generally in a better position to pass on their costs to unregulated customers. Those utilities that have lower market shares in their unregulated activities or are in businesses with few barriers to entry will likely be more at risk in passing on costs, and thus would receive lower scores. A high proportion of unregulated businesses or a higher risk of passing on costs to unregulated customers could result in a lower score for this factor than would apply if the business was completely regulated.
For U.S. and Canadian LDCs, this factor addresses the “Sustainable Profitability” and “Regulatory Support” assessments in the previous LDC rating methodology. While LDCs’ authorized returns are comparable to those for their electric counterparts, the smaller, more mature LDCs tend to face less regulatory challenges. Purchased Gas Adjustment mechanisms are the norm and they have made strides in implementing alternative rate designs that decouple revenues from volumes sold.
Factor 2 – Ability to Recover Costs and Earn Returns (25%) Aaa Aa A Baa Ba B
Rate/tariff formula allows unquestioned full and timely cost recovery, with statutory provisions in place to preclude any possibility of challenges to rate increases or cost recovery mechanisms.
Rate/tariff formula generally allows full and timely cost recovery. Fair return on all investments. Minimal challenges by regulators to companies’ cost assumptions; consistent track record of meeting efficiency tests.
Rate/tariff reviews and cost recovery outcomes are fairly predictable (with automatic fuel and purchased power recovery provisions in place where applicable), with a generally fair return on investments. Limited instances of regulatory challenges; although efficiency tests may be more challenging; limited delays to rate or tariff increases or cost recovery.
Rate/tariff reviews and cost recovery outcomes are usually predictable, although application of tariff formula may be relatively unclear or untested. Potentially greater tendency for regulatory intervention, or greater disallowance (e.g. challenging efficiency assumptions) or delaying of some costs (even where automatic fuel and purchased power recovery provisions are applicable).
Rate/tariff reviews and cost recovery outcomes are inconsistent, with some history of unfavorable regulatory decisions or unwillingness by regulators to make timely rate changes to address market volatility or higher fuel or purchased power costs. AND/OR Tariff formula may not take into account all cost components; investment are not clearly or fairly remunerated.
Difficult or highly uncertain rate and cost recovery outcomes. Regulators may engage in second-guessing of spending decisions or deny rate increases or cost recovery needed by utilities to fund ongoing operations, or high likelihood of politically motivated interference in the rate/tariff review process. AND/OR Tariff formula may not cover return on investments, only cash operating costs may be remunerated.
Exhibit __ (MAH-3) Page 25 of 51
75
9 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
Rating Factor 3 - Diversification (10%)
Why It Matters
Diversification of overall business operations helps to mitigate the risk that any one part of the company will have a severe negative impact on cash flow and credit quality. In general, a balance among several different businesses, geographic regions, regulatory regimes, generating plants, or fuel sources will diminish concentration risk and reduce the risk that a company will experience a sudden or rapid deterioration in its overall creditworthiness because of an adverse development specific to any one part of its operations.
How We Measure It For the Grid
For transmission and distribution utilities, local gas distribution companies, and other companies without significant generation, the key criterion we use is the diversity of their operations among various markets, geographic regions or regulatory regimes. For these utilities, the first set of criteria, labeled market diversification, account for the full 10% weighting for this factor. A predominately T&D utility with a high degree of diversification in terms of market and/or regulatory regime is less likely to be affected by adverse or unexpected developments in any one of these markets or regimes, and thus will receive the highest scores for this factor. Smaller T&D utilities operating in a limited market area or under the jurisdiction of a single regulatory regime will score lower on the factor, with those that are concentrated in an emerging market or riskier environment receiving the lowest scores.
For vertically integrated utilities with generation, the diversification factor is broadened to include not only the criteria discussed above, but also takes into consideration the diversity of their generating assets and the type of fuel sources which they rely on. An additional but somewhat related consideration is the degree to which the utility is exposed to (or insulated from) commodity price changes. A utility with a highly diversified fleet of generating assets using different types of fuels is generally better able to withstand changes in the price of a particular fuel or additional costs required for particular assets, such as more stringent environmental compliance requirements, and thus would receive a higher rating for this sub-factor. Those utilities with more limited diversification or that are more reliant on a single type of generation and fuel source (measured by energy produced) will be scored lower on this sub-factor. Similarly, those utilities with a high reliance on coal and other carbon emitting generating resources will be scored lower on this factor due to their vulnerability to potential carbon regulations and accompanying carbon costs.
Generally, only the largest vertically integrated utilities or transmission companies with substantial operations that are multinational or national in scope, or whose operations encompass a substantial region within a single country, will receive scores in the highest Aaa or Aa categories for this factor. In the U.S., most of the largest multi-state or multi-regional utilities are scored in the A category, most of the larger single state utilities are scored Baa, and smaller utilities operating in a single state or within a single city are scored Ba. A utility may also be scored higher if it is a combination electric and gas utility, which enhances diversification.
The diversification factor was not included in the previous North American LDC methodology. Most LDCs are small and tend to have little geographic and regulatory diversity. However, they tend to be highly stable due to their customer base and margins that comprise primarily of a large number of residential and small commercial customers that are captive to the utility. This customer composition tends to result in a more stable operating performance than those that have concentrations in certain industrial customers that are prone to cyclicality or to bypassing the LDC to obtain gas directly from a pipeline. Pure LDCs are scored under the “Market Position” sub-factor for a full 100% under this factor. As with transmission and distribution utilities, no scores are given for “Fuel/Generation Diversification” as this sub-factor would not be applicable.
Exhibit __ (MAH-3) Page 26 of 51
76
10 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
Factor 3: Diversification (10%)
Aaa Aa A Baa Ba B
Sub-Factor
Weighting
A high degree of multinational/ regional diversification in terms of market and/or regulatory regime.
Material operations in more than three nations or geographic regions providing diversification of market and/or regulatory regime.
Material operations in two or three states, nations, or geographic regions and exhibits some diversification of market and/or regulatory regime.
Operates in a single state, nation, or economic region with low volatility with some concentration of market and/or regulatory regime.
Operates in a limited market area with material concentration in market and/or regulatory regime.
Operates in a single market which may be an emerging market or riskier environment, with high concentration risk.
Market Position
For LDCs, extremely low reliance on industrial customers and/or exceptionally large residential and commercial customer base and well above average growth.
For LDCs, very low reliance on industrial customers and/or very large residential and commercial customer base with very high growth.
For LDCs, low reliance on industrial customers and/or high residential and commercial customer base with high growth.
For LDCs, moderate reliance on industrial customers in defensive sectors, moderate residential and customer base.
For LDCs, high reliance on industrial customers in somewhat cyclical sectors, small residential and commercial customer base.
For LDCs, very high reliance on industrial customers in cyclical sectors, very small residential and commercial customer base.
5% *
Generation and Fuel Diversity
A high degree of diversification in terms of generation and/or fuel source, well insulated from commodity price changes, no generation concentration, or 0-20% of generation from carbon fuels.
Some diversification in terms of generation and/or fuel source, affected only minimally by commodity price changes, little generation concentration, or 20-40% of generation from carbon fuels.
May have some concentration in one particular type of generation or fuel source, although mostly diversified, modest exposure to commodity price changes, or 40-55% of generation from carbon fuels.
Some reliance on a single type of generation or fuel source, limited diversification, moderate exposure to commodity prices, or 55-70% of generation from carbon fuels.
Operates with little diversification in terms of generation and/or fuel source, high exposure to commodity price changes, or 70-85% of generation from carbon fuels.
High concentration in a single type of generation or highly reliant on a single fuel source, little diversification, may be exposed to commodity price shocks, or 85-100% of generation from carbon fuels.
5% **
*10% weight for issuers that lack generation **0% weight for issuers that lack generation
Rating Factor 4 – Financial Strength and Liquidity (40%)
Why It Matters
Since most electric and gas utilities are highly capital intensive, financial strength and liquidity are key credit factors supporting their long-term viability. Financial strength and liquidity are also important to the maintenance of good relationships with regulators, to assure adequate regulatory responsiveness to rate increase requests and for cost recovery, and to avoid the need for sudden or unexpected rate increases to avoid financial problems. Financial strength is also important due to the ongoing need to invest in generation, transmission, and distribution assets that often require substantial amounts of debt financing. Utilities are among the largest debt issuers in the world and typically require consistent access to the capital markets to assure adequate sources of funding and to maintain financial flexibility.
Although ratio analysis is a helpful way of comparing one company’s performance to that of another, no single financial ratio can adequately convey the relative credit strength of these highly diverse companies. The relative strength of a company’s financial ratios must take into consideration the level of business risk associated with the more qualitative factors in the methodology. Companies with a lower business risk can have weaker credit metrics than those with higher business risk for the same rating category.
Exhibit __ (MAH-3) Page 27 of 51
77
11 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
Given the long-term nature of many of the capital intensive projects undertaken in the industry and the need to obtain regulatory recovery over an often multi-year time period, it is important to analyze both a utility’s historical financial performance as well as its prospective future performance, which may be different from the historic measures. Scores under this factor may be higher or lower than what might be expected from historical results, depending on our view of expected future performance.
How We Measure It For the Grid
In addition to assigning a score for a utility’s overall liquidity position and relative access to funding sources and the capital markets, we have identified four key core ratios that we consider the most useful in the analysis of regulated electric and gas utilities. The four ratios are the following:
Cash from Operations (CFO) pre-Working Capital Plus Interest / Interest
Cash from Operations (CFO) pre-Working Capital / Debt
Cash from Operations (CFO) pre-Working Capital – Dividends / Debt
Debt/Capitalization or Debt / Regulated Asset Value (RAV)
The use of Debt / Capitalization or Debt / Regulated Asset Value will depend largely on the regulatory regime in which the utility operates, as explained below. These credit metrics incorporate all of the standard adjustments applied by Moody’s when analyzing financial statements, including adjustments for certain types of off-balance sheet financings and certain other reclassifications in the income statement and cash flow statement.
These cash flow based ratios replace the earnings based metrics in the previous “North American Local Gas Distribution Company” rating methodology, reducing the impact on the grid results from non-cash items, such as pension expense.
The ratio calculations utilized and published for the companies covered by this methodology (including the 30 representative electric and gas utility companies highlighted) are historical three-year averages for the years 2006-2008. Three-year averages are used in part to smooth out some of the year to year volatility in financial performance and financial statement ratios.
Measurement Criteria
Liquidity
Liquidity analysis is a key element in the financial analysis of electric and gas utilities and encompasses a company’s ability to generate cash from internal sources, as well as the availability of external sources of financings to supplement these internal sources. Sources of funds are compared to a company’s cash needs and other obligations over the next twelve months. The highest “Aaa” and “Aa” scores under this sub-factor would be assigned to those utilities that are financially robust under all or virtually all scenarios, with little to no need for external funding and with unquestioned or superior access to the capital markets. Most utilities, however, receive more moderate scores of between “A” and “Baa” in this sub-factor as most need to rely to some degree on external funding sources to finance capital expenditures and meet other capital needs. Below investment grade scores on the sub-factor are assigned to utilities with weak liquidity or those that rely heavily on debt to finance investments.
CFO pre-Working Capital Plus Interest/Interest or Cash Flow Interest Coverage
The cash flow interest coverage ratio is a basic measure of a utility’s ability to cover the cost of its borrowed capital and is an important analytical tool in this highly capital intensive industry. The numerator in the ratio calculation is a measure of cash flow excluding working capital movements plus interest expense, which can vary in significance depending on the utility. The use of CFO pre-WC is more comprehensive than Funds from Operations (FFO) under U.S. Generally Accepted Accounting Principles (GAAP) since it also captures the changes in long-term regulatory assets and liabilities. However, under International Financial Reporting Standards (IFRS), the two measures are essentially the same. The denominator in the ratio calculation is interest expense, which incorporates our standard adjustments to interest expense, such as including
Exhibit __ (MAH-3) Page 28 of 51
78
12 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
capitalized interest and re-classifying the interest component of operating lease rental expense. In Brazil, the cash interest amount is adjusted by the variation of non-cash financial expenses derived from foreign exchange and inflation denominated debt.
CFO pre-Working Capital / Debt
This metric measures the cash generating ability of a utility compared to the aggregate level of debt on the balance sheet. This ratio is useful in comparing utilities, many of which maintain a significant amount of leverage in their capital structure. The debt calculation takes into consideration Moody’s standard adjustments to balance sheet debt, such as for operating leases, underfunded pension liabilities, basket-adjusted hybrids, guarantees, and other debt-like items.
CFO pre-Working Capital – Dividends / Debt
This ratio is a measure of financial leverage as well as an indicator of the strength of a utility’s cash flow after dividend payments are made. Dividend obligations of utilities are often substantial and can affect the ability of a utility to cover its debt obligations. The higher the level of retained cash flow relative to a utility’s debt, the more cash the utility has to support its capital expenditure program. Moody’s expects that even the financially strongest utilities will need to issue debt on a regular basis to maintain a target capital structure if their asset bases are growing. If a utility with an expanding asset base funds all of its capital expenditures with internally generated cash flow then, in the extreme, the utility’s debt to capitalization will trend toward zero.
Debt/Capitalization or Debt/Regulated Asset Value or RAV
This ratio is a traditional measure of leverage and can be a useful way to gauge a utility’s overall financial flexibility in light of its overall debt load. High debt to capitalization levels are not only an indicator of higher interest obligations, but can also limit the ability of a utility to raise additional financing if needed and can lead to leverage covenant violations in bank credit facilities or other financing agreements. The denominator of the debt / capitalization ratio includes Moody’s standard adjustments, the most important of which for some utilities is the inclusion of deferred taxes in capitalization, which tempers the impact of our debt adjustment.
While debt/capitalization is used predominantly in the Americas, other regions may use a variation of this ratio, namely, debt/regulated asset value or RAV ratio. The regulated asset base is comprised of the physical assets that are used to provide regulated distribution services and the RAV represents the value on which the utility is permitted to earn a return. RAV can be calculated in various ways, using different rules that can be revised periodically, depending on the regulatory regime. Where RAV is calculated using consistent rules (i.e. Australia and Japan), debt/RAV is viewed as superior to debt / capitalization as a credit measure and will be used for this sub-factor. Where RAV does not exist (i.e. North America and most Asian countries) or the method of calculation is subject to arbitrary or unpredictable revisions, we use debt/capitalization.
Exhibit __ (MAH-3) Page 29 of 51
79
13 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
Factor 4: Financial Strength, Liquidity and Key Financial Metrics (40%)
Aaa Aa A Baa Ba B Sub-Factor Weighting
Liquidity
Financially robust under all scenarios with no need for external funding, unquestioned access to the capital markets, and excellent liquidity.
Financially robust under virtually all scenarios with little to no need for external funding, superior access to the capital markets, and very strong liquidity.
Financially strong under most scenarios with some reliance on external funding, solid access to the capital markets, and strong liquidity.
Some reliance on external funding and liquidity is more likely to be affected by external events, good access to the capital markets, and adequate liquidity under most scenarios.
Weak liquidity with more susceptibility to external shocks or unexpected events. Significant reliance on debt funding. Bank financing may be secured and there may be limited headroom under covenants.
Very weak liquidity with limited ability to withstand external shocks or unexpected events. Must use debt to finance investments. Bank financing is normally secured and there may be a high likelihood of breaching one or more covenants.
10%
CFO pre-WC + Interest/Interest > 8.0x 6.0x - 8.0x 4.5x - 6.0x 2.7x - 4.5x 1.5x - 2.7x < 1.5x 7.5%
CFO pre-WC/ Debt > 40% 30% - 40% 22% - 30% 13% - 22% 5% - 13% < 5% 7.5%
CFO pre-WC - Dividends/ Debt > 35% 25% - 35% 17% - 25% 9% - 17% 0% - 9% < 0% 7.5%
Debt/ Capitalization
Debt/RAV < 25%
< 30% 25% - 35%
30% – 45% 35% - 45%
45% - 60% 45% - 55%
60% - 75% 55% - 65%
75% - 90% > 65%
> 90% 7.5%
7.5%
Rating Methodology Assumptions and Limitations, and other Rating Considerations
The rating methodology grid incorporates a trade-off between simplicity that enhances transparency and greater complexity that would enable the grid to map more closely to actual ratings. The four rating factors in the grid do not constitute an exhaustive treatment of all of the considerations that are important for ratings of companies in the regulated electric and gas utility sector. In addition, our ratings incorporate expectations for future performance, while the financial information that is used to illustrate the mapping in the grid is mainly historical. In some cases, our expectations for future performance may be impacted by confidential information that we cannot publish. In other cases, we estimate future results based upon past performance, industry trends, and other factors. In either case, we acknowledge that estimating future performance is subject to the risk of substantial inaccuracy.
In choosing metrics for this rating methodology grid, we did not include certain important factors that are common to all companies in any industry, such as the quality and experience of management, assessments of corporate governance, financial controls, and the quality of financial reporting and information disclosure. The assessment of these factors can be highly subjective and ranking them by rating category in a grid would in some cases suggest too much precision in the relative ranking of particular issuers against all other issuers that are rated in various industry sectors.
Ratings may include additional factors that are difficult to quantify or that only have a meaningful effect in differentiating credit quality in some cases. Such factors include environmental obligations, nuclear decommissioning trust obligations, financial controls, and emerging market risk, where ratings might be
Exhibit __ (MAH-3) Page 30 of 51
80
14 August 2009 Rating Methodology Moody’s Global Infrastructure Finance - Regulated Electric and Gas Utilities
Rating Methodology Moody’s Global Infrastructure Finance
Regulated Electric and Gas Utilities
constrained by the uncertainties associated with the local operating, political and economic environment, including possible government interference.
Actual assigned ratings may also reflect circumstances in which the weighting of a particular factor will be different from the weighting suggested by the grid. For example, although Factors 1 and 2 address regulation and cost recovery, in some instances the effect of a company’s financial strength and liquidity in Factor 4 will be given greater consideration in an assigned rating than what is indicated by the weighting in the grid.
Conclusion: Summary of the Grid-Indicated Rating Outcomes
For the 30 representative utilities highlighted, the methodology grid-indicated ratings map to current assigned ratings as follows (see Appendix B for the details):
• 30% or 9 companies map to their assigned rating
• 50% or 15 companies have grid-indicated ratings that are within one alpha-numeric notch of their assigned rating
• 20% or 6 companies have grid-indicated ratings that are within two alpha-numeric notches of their assigned rating
Grid-Indicated Rating Outcomes
Map to Assigned Rating Map to Within One Notch Map to Within Two Notches American Electric Power Company, Inc. Cemig Distribuicao S.A. Duke Energy Corporation
Arizona Public Service Company Consolidated Edison Company of New York Eesti Energia AS
CLP Holdings Limited Dominion Resources, Inc. Eskom Holdings Ltd
Consumers Energy Company EDP – Energias do Brasil S.A. Korea Electric Power Corporation
Florida Power & Light Company Emera Incorporated Northern Illinois Gas Company
PG&E Corporation The Empire District Electric Company Tokyo Electric Power Company
Piedmont Natural Gas Company, Inc. FirstEnergy Corp.
The Southern Company Indianapolis Power & Light Company
Xcel Energy Inc. Kyushu Electric Power Company
Oklahoma Gas and Electric Co.
PECO Energy Company
Progress Energy Carolinas, Inc.
Southern California Edison Company
Westar Energy, Inc.
Wisconsin Power and Light Company
Exhibit __ (MAH-3) Page 31 of 51
81
15 A
ugus
t 200
9 �
Rat
ing
Met
hodo
logy
� M
oody
’s G
loba
l Inf
rast
ruct
ure
Fina
nce
- R
egul
ated
Ele
ctric
and
Gas
Util
ities
Rat
ing
Met
hodo
logy
M
oody
's G
loba
l Inf
rast
ruct
ure
Fina
nce
Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Ap
pen
dix
A:
Reg
ula
ted
Ele
ctri
c an
d G
as
Uti
liti
es
Meth
od
olo
gy F
act
or
Gri
d
Fact
or
1:
Reg
ula
tory
Fra
mew
ork
W
eigh
ting
:
25%
Aaa
Aa
ABa
aBa
BSu
b-Fa
ctor
Wei
ghti
ng
Regu
lato
ry f
ram
ewor
k is
ful
ly
deve
lope
d, h
as a
long
-tra
ck
reco
rd o
f be
ing
pred
icta
ble
and
stab
le,
and
is h
ighl
y su
ppor
tive
of
utili
ties
. U
tilit
y re
gula
tory
bod
y is
a h
ighl
y ra
ted
sove
reig
n or
str
ong
inde
pend
ent
regu
lato
r w
ith
unqu
esti
oned
aut
hori
ty o
ver
utili
ty r
egul
atio
n th
at is
na
tion
al in
sco
pe.
Regu
lato
ry f
ram
ewor
k is
fu
lly d
evel
oped
, ha
s be
en
mos
tly
pred
icta
ble
and
stab
le in
rec
ent
year
s,
and
is m
ostl
y su
ppor
tive
of
uti
litie
s. U
tilit
y re
gula
tory
bod
y is
a
sove
reig
n, s
over
eign
ag
ency
, pr
ovin
cial
, or
in
depe
nden
t re
gula
tor
wit
h au
thor
ity
over
mos
t ut
ility
reg
ulat
ion
that
is
nati
onal
in s
cope
.
Regu
lato
ry f
ram
ewor
k is
fu
lly d
evel
oped
, ha
s ab
ove
aver
age
pred
icta
bilit
y an
d re
liabi
lity,
alt
houg
h is
so
met
imes
les
s su
ppor
tive
of
uti
litie
s. U
tilit
y re
gula
tory
bod
y m
ay b
e a
stat
e co
mm
issi
on o
r na
tion
al,
stat
e, p
rovi
ncia
l or
inde
pend
ent
regu
lato
r.
Regu
lato
ry f
ram
ewor
k is
a)
wel
l-de
velo
ped,
wit
h ev
iden
ce o
f so
me
inco
nsis
tenc
y or
un
pred
icta
bilit
y in
the
w
ay f
ram
ewor
k ha
s be
en
appl
ied,
or
fram
ewor
k is
ne
w a
nd u
ntes
ted,
but
ba
sed
on w
ell-
deve
lope
d an
d es
tabl
ishe
d pr
eced
ents
, or
b)
juri
sdic
tion
has
his
tory
of
inde
pend
ent
and
tran
spar
ent
regu
lati
on in
ot
her
sect
ors.
Reg
ulat
ory
envi
ronm
ent
may
so
met
imes
be
chal
leng
ing
and
polit
ical
ly c
harg
ed.
Regu
lato
ry f
ram
ewor
k is
de
velo
ped,
but
the
re is
a
high
deg
ree
of
inco
nsis
tenc
y or
un
pred
icta
bilit
y in
the
way
th
e fr
amew
ork
has
been
ap
plie
d. R
egul
ator
y en
viro
nmen
t is
co
nsis
tent
ly c
halle
ngin
g an
d po
litic
ally
cha
rged
. Th
ere
has
been
a h
isto
ry
of d
iffi
cult
or
less
su
ppor
tive
reg
ulat
ory
deci
sion
s, o
r re
gula
tory
au
thor
ity
has
been
or
may
be
cha
lleng
ed o
r er
oded
by
pol
itic
al o
r le
gisl
ativ
e ac
tion
.
Regu
lato
ry f
ram
ewor
k is
le
ss d
evel
oped
, is
unc
lear
, is
und
ergo
ing
subs
tant
ial
chan
ge o
r ha
s a
hist
ory
of
bein
g un
pred
icta
ble
or
adve
rse
to u
tilit
ies.
Uti
lity
regu
lato
ry b
ody
lack
s a
cons
iste
nt t
rack
rec
ord
or
appe
ars
unsu
ppor
tive
, un
cert
ain,
or
high
ly
unpr
edic
tabl
e. M
ay b
e hi
gh r
isk
of n
atio
naliz
atio
nor
oth
er s
igni
fica
nt
gove
rnm
ent
inte
rven
tion
in
uti
lity
oper
atio
ns o
r m
arke
ts.
25%
Fact
or
2:
Ab
ilit
y t
o R
eco
ver
Co
sts
an
d E
arn
Retu
rns
Wei
ghti
ng:
25
%A
aaA
aA
Baa
BaB
Sub-
Fact
orW
eigh
ting
Ra
te/t
arif
f fo
rmul
a al
low
s un
ques
tion
ed f
ull a
nd
tim
ely
cost
rec
over
y, w
ith
stat
utor
y pr
ovis
ions
in
plac
e to
pre
clud
e an
y po
ssib
ility
of
chal
leng
es
to r
ate
incr
ease
s or
cos
t re
cove
ry m
echa
nism
s.
Rate
/tar
iff
form
ula
gene
rally
allo
ws
full
and
tim
ely
cost
rec
over
y.
Fair
ret
urn
on a
ll in
vest
men
ts.
Min
imal
ch
alle
nges
by
regu
lato
rs
to c
ompa
nies
’ co
st
assu
mpt
ions
; co
nsis
tent
tr
ack
reco
rd o
f m
eeti
ng
effi
cien
cy t
ests
.
Rate
/tar
iff
revi
ews
and
cost
rec
over
y ou
tcom
es
are
fair
ly p
redi
ctab
le
(wit
h au
tom
atic
fue
l an
d pu
rcha
sed
pow
er
reco
very
pro
visi
ons
in
plac
e w
here
ap
plic
able
), w
ith
a ge
nera
lly f
air
retu
rn o
n in
vest
men
ts.
Lim
ited
in
stan
ces
of r
egul
ator
y ch
alle
nges
; al
thou
gh
effi
cien
cy t
ests
may
be
mor
e ch
alle
ngin
g;
limit
ed d
elay
s to
rat
e or
ta
riff
incr
ease
s or
cos
t re
cove
ry.
Rate
/tar
iff
revi
ews
and
cost
rec
over
y ou
tcom
es
are
usua
lly p
redi
ctab
le,
alth
ough
app
licat
ion
of
tari
ff f
orm
ula
may
be
rela
tive
ly u
ncle
ar o
r un
test
ed.
Pote
ntia
lly
grea
ter
tend
ency
for
re
gula
tory
inte
rven
tion
, or
gre
ater
dis
allo
wan
ce
(e.g
. ch
alle
ngin
g ef
fici
ency
ass
umpt
ions
) or
del
ayin
g of
som
e co
sts
(eve
n w
here
aut
omat
ic
fuel
and
pur
chas
ed
pow
er r
ecov
ery
prov
isio
ns a
re
appl
icab
le).
Rat
e/ta
riff r
evie
ws
and
cost
rec
over
y ou
tcom
es
are
inco
nsis
tent
, wit
h so
me
hist
ory
of
unfa
vora
ble
regu
lato
ry
deci
sion
s or
unw
illin
gnes
s by
reg
ulat
ors
to m
ake
tim
ely
rate
cha
nges
to
addr
ess
mar
ket
vola
tilit
y or
hig
her
fuel
or
purc
hase
d po
wer
cos
ts.
AND
/OR
Ta
riff
for
mul
a m
ay n
ot
take
into
acc
ount
all
cost
com
pone
nts;
in
vest
men
t ar
e no
t cl
earl
y or
fai
rly
rem
uner
ated
.
Diff
icul
t or
hig
hly
unce
rtai
n ra
te a
nd c
ost r
ecov
ery
outc
omes
. Reg
ulat
ors
may
en
gage
in se
cond
-gue
ssin
g of
spe
ndin
g de
cisio
ns o
r de
ny ra
te in
crea
ses
or c
ost
reco
very
nee
ded
by
utili
ties t
o fu
nd o
ngoi
ng
oper
atio
ns, o
r hig
h lik
elih
ood
of p
oliti
cally
m
otiv
ated
inte
rfer
ence
in
the
rate
/tar
iff re
view
pr
oces
s.
AND
/OR
Ta
riff
for
mul
a m
ay n
ot
cove
r re
turn
on
inve
stm
ents
, on
ly c
ash
oper
atin
g co
sts
may
be
rem
uner
ated
.
25%
Exhi
bit _
_ (M
AH
-3)
Page
32
of 5
1Exhibit __ (MAH-1) Page 32 of 51
82
16 A
ugus
t 200
9 �
Rat
ing
Met
hodo
logy
� M
oody
’s G
loba
l Inf
rast
ruct
ure
Fina
nce
- R
egul
ated
Ele
ctric
and
Gas
Util
ities
Rat
ing
Met
hodo
logy
M
oody
's G
loba
l Inf
rast
ruct
ure
Fina
nce
Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Fact
or
3:
Div
ers
ific
ati
on
Wei
ghti
ng:
10
%A
aaA
aA
Baa
BaB
Sub-
Fact
orW
eigh
ting
A hi
gh d
egre
e of
m
ulti
nati
onal
/reg
iona
l di
vers
ific
atio
n in
ter
ms
of
mar
ket
and/
or r
egul
ator
y re
gim
e.
Mat
eria
l ope
rati
ons
in
mor
e th
an t
hree
nat
ions
or
geo
grap
hic
regi
ons
prov
idin
g di
vers
ific
atio
n of
mar
ket
and/
or
regu
lato
ry r
egim
e.
Mat
eria
l ope
rati
ons
in
two
or t
hree
sta
tes,
na
tion
s, o
r ge
ogra
phic
re
gion
s an
d ex
hibi
ts
som
e di
vers
ific
atio
n of
m
arke
t an
d/or
re
gula
tory
reg
ime.
Ope
rate
s in
a s
ingl
e st
ate,
nat
ion,
or
econ
omic
reg
ion
wit
h lo
w v
olat
ility
wit
h so
me
conc
entr
atio
n of
mar
ket
and/
or r
egul
ator
y re
gim
e.
Ope
rate
s in
a li
mit
ed
mar
ket
area
wit
h m
ater
ial c
once
ntra
tion
in
mar
ket
and/
or
regu
lato
ry r
egim
e.
Ope
rate
s in
a s
ingl
e m
arke
t w
hich
may
be
an
emer
ging
mar
ket
or
risk
ier
envi
ronm
ent,
w
ith
high
con
cent
rati
on
risk
.
Mar
ket
Posi
tion
For
LDCs
, ex
trem
ely
low
re
lianc
e on
indu
stri
al
cust
omer
s an
d/or
ex
cept
iona
lly la
rge
resi
dent
ial a
nd
com
mer
cial
cus
tom
er
base
and
wel
l abo
ve
aver
age
grow
th.
For
LDCs
, ve
ry lo
w
relia
nce
on in
dust
rial
cu
stom
ers
and/
or v
ery
larg
e re
side
ntia
l and
co
mm
erci
al c
usto
mer
ba
se w
ith
very
hig
h gr
owth
.
For
LDCs
, lo
w r
elia
nce
on in
dust
rial
cus
tom
ers
and/
or h
igh
resi
dent
ial
and
com
mer
cial
cu
stom
er b
ase
wit
h hi
gh
grow
th.
For
LDCs
, m
oder
ate
relia
nce
on in
dust
rial
cu
stom
ers
in d
efen
sive
se
ctor
s, m
oder
ate
resi
dent
ial a
nd c
usto
mer
ba
se.
For
LDCs
, hi
gh r
elia
nce
on in
dust
rial
cus
tom
ers
in s
omew
hat
cycl
ical
se
ctor
s, s
mal
l re
side
ntia
l and
co
mm
erci
al c
usto
mer
ba
se.
For
LDCs
, ve
ry h
igh
relia
nce
on in
dust
rial
cu
stom
ers
in c
yclic
al
sect
ors,
ver
y sm
all
resi
dent
ial a
nd
com
mer
cial
cus
tom
er
base
.
5% *
Gen
erat
ion
and
Fuel
D
iver
sity
A hi
gh d
egre
e of
di
vers
ific
atio
n in
ter
ms
of
gene
rati
on a
nd/o
r fu
el
sour
ce,
wel
l ins
ulat
ed
from
com
mod
ity
pric
e ch
ange
s, n
o ge
nera
tion
co
ncen
trat
ion,
or
0-20
% of
gen
erat
ion
from
car
bon
fuel
s.
Som
e di
vers
ific
atio
n in
te
rms
of g
ener
atio
n an
d/or
fue
l sou
rce,
af
fect
ed o
nly
min
imal
ly
by c
omm
odit
y pr
ice
chan
ges,
litt
le
gene
rati
onco
ncen
trat
ion,
or
20-
40%
of g
ener
atio
n fr
om
carb
on f
uels
.
May
hav
e so
me
conc
entr
atio
n in
one
pa
rtic
ular
typ
e of
ge
nera
tion
or
fuel
so
urce
, al
thou
gh m
ostl
y di
vers
ifie
d, m
odes
t ex
posu
re t
o co
mm
odit
y pr
ice
chan
ges,
or
40-
55%
of g
ener
atio
n fr
om
carb
on f
uels
.
Som
e re
lianc
e on
a
sing
le t
ype
of g
ener
atio
n or
fue
l sou
rce,
lim
ited
di
vers
ific
atio
n,m
oder
ate
expo
sure
to
com
mod
ity
pric
es,
or 5
5-70
% of
gen
erat
ion
from
ca
rbon
fue
ls.
Ope
rate
s w
ith
littl
e di
vers
ific
atio
n in
ter
ms
of g
ener
atio
n an
d/or
fu
el s
ourc
e, h
igh
expo
sure
to
com
mod
ity
pric
e ch
ange
s, o
r 70
-85%
of
gen
erat
ion
from
ca
rbon
fue
ls.
Hig
h co
ncen
trat
ion
in a
si
ngle
typ
e of
ge
nera
tion
or
high
ly
relia
nt o
n a
sing
le f
uel
sour
ce,
littl
e di
vers
ific
atio
n, m
ay b
e ex
pose
d to
com
mod
ity
pric
e sh
ocks
, or
85-
100%
of
gen
erat
ion
from
ca
rbon
fue
ls.
5% *
*
*10%
wei
ght f
or is
suer
s th
at la
ck g
ener
atio
n *
*0%
wei
ght f
or is
suer
s th
at la
ck g
ener
atio
n
Exhi
bit _
_ (M
AH
-3)
Page
33
of 5
1Exhibit __ (MAH-1) Page 33 of 51
83
17 A
ugus
t 200
9 �
Rat
ing
Met
hodo
logy
� M
oody
’s G
loba
l Inf
rast
ruct
ure
Fina
nce
- R
egul
ated
Ele
ctric
and
Gas
Util
ities
Rat
ing
Met
hodo
logy
M
oody
's G
loba
l Inf
rast
ruct
ure
Fina
nce
Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Fact
or
4:
Fin
an
cial S
tren
gth
, Liq
uid
ity a
nd
Key F
inan
cial M
etr
ics
Wei
ghti
ng:
40
%A
aaA
aA
Baa
BaB
Sub-
Fact
orW
eigh
ting
Liqu
idit
y
Fina
ncia
lly r
obus
t un
der
all s
cena
rios
wit
h no
ne
ed f
or e
xter
nal
fund
ing,
unq
uest
ione
d ac
cess
to
the
capi
tal
mar
kets
, an
d ex
celle
nt
liqui
dity
.
Fina
ncia
lly r
obus
t un
der
virt
ually
all
scen
ario
s w
ith
littl
e to
no
need
fo
r ex
tern
al f
undi
ng,
supe
rior
acc
ess
to t
he
capi
tal m
arke
ts,
and
very
str
ong
liqui
dity
.
Fina
ncia
lly s
tron
g un
der
mos
t sc
enar
ios
wit
h so
me
relia
nce
on
exte
rnal
fun
ding
, so
lid
acce
ss t
o th
e ca
pita
l m
arke
ts,
and
stro
ng
liqui
dity
.
Som
e re
lianc
e on
ex
tern
al f
undi
ng a
nd
liqui
dity
is m
ore
likel
y to
be
affe
cted
by
exte
rnal
eve
nts,
goo
d ac
cess
to
the
capi
tal
mar
kets
, an
d ad
equa
te
liqui
dity
und
er m
ost
scen
ario
s.
Wea
k liq
uidi
ty w
ith
mor
e su
scep
tibi
lity
to
exte
rnal
sho
cks
or
unex
pect
ed e
vent
s.
Sign
ific
ant
relia
nce
on
debt
fun
ding
. Ba
nk
fina
ncin
g m
ay b
e se
cure
d an
d th
ere
may
be
lim
ited
hea
droo
m
unde
r co
vena
nts.
Very
wea
k liq
uidi
ty w
ith
limit
ed a
bilit
y to
w
iths
tand
ext
erna
l sh
ocks
or
unex
pect
ed
even
ts.
Mus
t us
e de
bt t
o fi
nanc
e in
vest
men
ts.
Bank
fin
anci
ng is
no
rmal
ly s
ecur
ed a
nd
ther
e m
ay b
e a
high
lik
elih
ood
of b
reac
hing
on
e or
mor
e co
vena
nts.
10%
CFO
pre
-WC
+ In
tere
st/
Inte
rest
> 8.
0x
6.0x
- 8
.0x
4.5x
- 6
.0x
2.7x
- 4
.5x
1.5x
- 2
.7x
< 1.
5x
7.5%
CFO
pre-
WC/
Deb
t>
40%
30%
- 40
% 22
% -
30%
13%
- 22
% 5%
- 1
3%
< 5%
7.
5%
CFO
pre
-WC
- D
ivid
ends
/ D
ebt
> 35
% 25
% -
35%
17%
- 25
% 9%
- 1
7%
0% -
9%
< 0%
7.
5%
Deb
t/Ca
pita
lizat
ion
Deb
t/RA
V <
25%
< 3
0%
25%
- 35
% 3
0% -
45%
35
% -
45%
45%
- 6
0%
45%
- 55
% 6
0% -
75%
55
% -
65%
75%
- 9
0%
> 65
% >
90%
7.
5% 7
.5%
Exhi
bit _
_ (M
AH
-3)
Page
34
of 5
1Exhibit __ (MAH-1) Page 34 of 51
84
18 A
ugus
t 200
9 �
Rat
ing
Met
hodo
logy
� M
oody
’s G
loba
l Inf
rast
ruct
ure
Fina
nce
- Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Rat
ing
Met
hodo
logy
M
oody
's G
loba
l Inf
rast
ruct
ure
Fina
nce
Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Ap
pen
dix
B:
Meth
od
olo
gy G
rid
-In
dic
ate
d R
ati
ng
s
Fact
or 1
: Re
gula
tory
Fr
amew
ork
Fact
or 2
: Re
turn
s an
d Co
st R
ecov
ery
Fact
or 3
: D
iver
sifi
cati
on
Fact
or 4
: Fi
nanc
ial
Stre
ngth
Sub-
Fact
or W
eigh
ts
25%
25
%
5%
5%
10%
7.
5%
7.5%
7.
5%
7.5%
Curr
ent
Rati
ng/B
CA
Indi
cate
d Ra
ting
Re
gula
tory
Su
ppor
tive
ness
Rate
A
djus
tmen
t an
d Co
st
Reco
very
M
echa
nism
s
Indi
cate
d Fa
ctor
3
Rati
ng
Mar
ket
Posi
tion
Fuel
or
Gen
erat
ion
Div
ersi
fica
tion
Indi
cate
d Fa
ctor
4
Rati
ng
Liqu
idit
y
3 Ye
ar A
vera
ge
CFO
pre
-WC
+ In
tere
st/
Inte
rest
3 Ye
ar
Ave
rage
CFO
pr
e-W
C /
Deb
t
3 Ye
ar
Ave
rage
CFO
pre
-W
/C –
D
ivid
ends
/
Deb
t
3 Ye
ar
Ave
rage
Deb
t /
Cap
or D
ebt/
RAV
Kyus
hu E
lect
ric
Pow
er
Com
pany
, In
corp
orat
ed
Aa2
Aa3
Aaa
AaAa
AAa
aA
AaAa
BaBa
Baa
Toky
o El
ectr
ic P
ower
Co
mpa
ny,
Inco
rpor
ated
Aa
2A1
Aaa
AaAa
AAa
aBa
aAa
ABa
BaBa
Eest
i Ene
rgia
AS
A1/[
8]
A3
Baa
Baa
BB
BAa
Ba
a Aa
a Aa
a Aa
a Aa
Flor
ida
Pow
er &
Lig
ht
Com
pany
A1A1
AA
Baa
Baa
Baa
AaA
AaAa
AaA
Kore
a El
ectr
ic P
ower
Co
rpor
atio
n A2
/[6]
Ba
a1Ba
aBa
aBa
aBa
aA
ABa
aAa
AA
A
CLP
Hol
ding
s Li
mit
ed
A2A2
AA
AA
AA
AAa
ABa
aA
Nor
ther
n Ill
inoi
s G
as
Com
pany
A2Ba
a1Ba
aBa
aA
AN
/ABa
aBa
aA
ABa
aBa
aO
klah
oma
Gas
and
El
ectr
ic C
ompa
ny
A2A3
Baa
ABa
aBa
aBa
aA
AA
AA
AW
isco
nsin
Pow
er a
nd
Ligh
t Co
mpa
ny
A2A3
AA
Baa
Baa
Baa
ABa
aA
ABa
aA
Cons
olid
ated
Edi
son
Com
pany
of
New
Yor
k A3
Baa1
Baa
ABa
aBa
aN
/ABa
aA
Baa
Baa
BaA
PECO
Ene
rgy
Com
pany
A3
Baa1
Baa
Baa
Baa
Baa
N/A
AA
AA
Baa
Baa
Pied
mon
t N
atur
al G
as
Com
pany
, In
c.
A3A3
AA
AA
N/A
Baa
Baa
ABa
aBa
aBa
aPr
ogre
ss E
nerg
y Ca
rolin
as,
Inc.
A3
A2A
ABa
aBa
aA
ABa
aA
AA
Baa
Sout
hern
Cal
ifor
nia
Edis
on C
ompa
ny
A3Ba
a1Ba
aBa
aBa
aBa
aA
AA
AA
ABa
aTh
e So
uthe
rn
Com
pany
A3A3
AA
Baa
ABa
Baa
AA
Baa
Baa
Baa
PG&
E Co
rpor
atio
n
Baa1
Baa1
Baa
Baa
ABa
aAa
Baa
Baa
AA
ABa
a
Xcel
Ene
rgy
Inc.
Ba
a1Ba
a1Ba
aA
AA
ABa
aBa
aBa
aBa
aBa
aBa
aAm
eric
an E
lect
ric
Pow
er C
ompa
ny,
Inc.
Ba
a2Ba
a2Ba
aBa
aBa
aA
BaBa
aBa
aBa
aBa
aBa
aBa
Exhi
bit _
_ (M
AH
-3)
Page
35
of 5
1Exhibit __ (MAH-1) Page 35 of 51
85
19 A
ugus
t 200
9 �
Rat
ing
Met
hodo
logy
� M
oody
’s G
loba
l Inf
rast
ruct
ure
Fina
nce
- Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es
Rat
ing
Met
hodo
logy
M
oody
's G
loba
l Inf
rast
ruct
ure
Fina
nce
Reg
ulat
ed E
lect
ric a
nd G
as U
tiliti
es Fa
ctor
1:
Regu
lato
ry
Fram
ewor
k
Fact
or 2
: Re
turn
s an
d Co
st R
ecov
ery
Fact
or 3
: D
iver
sifi
cati
on
Fact
or 4
: Fi
nanc
ial
Stre
ngth
Sub-
Fact
or W
eigh
ts
25%
25
%
5%
5%
10%
7.
5%
7.5%
7.
5%
7.5%
Curr
ent
Rati
ng/B
CA
Indi
cate
d Ra
ting
Re
gula
tory
Su
ppor
tive
ness
Rate
A
djus
tmen
t an
d Co
st
Reco
very
M
echa
nism
s
Indi
cate
d Fa
ctor
3
Rati
ng
Mar
ket
Posi
tion
Fuel
or
Gen
erat
ion
Div
ersi
fica
tion
Indi
cate
d Fa
ctor
4
Rati
ng
Liqu
idit
y
3 Ye
ar A
vera
ge
CFO
pre
-WC
+ In
tere
st/
Inte
rest
3 Ye
ar
Ave
rage
CFO
pr
e-W
C /
Deb
t
3 Ye
ar
Ave
rage
CFO
pre
-W
/C –
D
ivid
ends
/
Deb
t
3 Ye
ar
Ave
rage
Deb
t /
Cap
or D
ebt/
RAV
Ariz
ona
Publ
ic S
ervi
ce
Com
pany
Baa2
Baa2
BaBa
aBa
aBa
aBa
aBa
aBa
aA
Baa
Baa
Baa
Cons
umer
s En
ergy
Co
mpa
nyBa
a2Ba
a2Ba
aBa
aBa
aBa
aBa
aBa
aBa
aBa
aBa
aBa
aBa
Dom
inio
n Re
sour
ces,
In
c.Ba
a2Ba
a1Ba
aA
AA
ABa
aBa
aBa
aBa
aBa
Baa
Duk
e En
ergy
Co
rpor
atio
n Ba
a2A3
Baa
ABa
aA
Baa
ABa
aA
ABa
aA
Emer
a In
corp
orat
ed
Baa2
Baa1
AA
BaBa
BaBa
Baa
Baa
BaBa
aB
The
Empi
re D
istr
ict
Elec
tric
Com
pany
Ba
a2Ba
a3Ba
Baa
Baa
Baa
Baa
Baa
Baa
Baa
Baa
Baa
Baa
Esko
m H
oldi
ngs
Ltd
Baa2
[13]
Ba
1 Ba
Ba
B
Ba
BBa
a Ba
Ba
A
AA
Indi
anap
olis
Pow
er &
Li
ght
Com
pany
Ba
a2Ba
a1Ba
aA
BaBa
aBa
Baa
Baa
AA
Baa
Baa
Cem
ig D
istr
ibui
ção
S.A.
Baa3
Baa2
BaBa
BaBa
N/A
ABa
aAa
Aaa
AaBa
Firs
tEne
rgy
Corp
. Ba
a3Ba
a2Ba
aBa
aBa
aA
Baa
Baa
Baa
Baa
Baa
Baa
Ba
Wes
tar
Ener
gy,
Inc.
Ba
a3Ba
a2Ba
aBa
aBa
Baa
BaBa
aBa
aBa
aBa
aBa
aBa
aED
P -
Ener
gias
do
Bras
il S.
A.
Ba1
Baa3
BaBa
Baa
Baa
Baa
Baa
BaBa
aAa
AA
Pos
itive
Out
lier
Neg
ativ
e O
utlie
r
Exhi
bit _
_ (M
AH
-3)
Page
36
of 5
1Exhibit __ (MAH-1) Page 36 of 51
86
20 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Appendix C: Observations and Outliers for Grid Mapping
Results of Mapping Factor 1
Factor 1: Regulatory Framework Factor Weight 25%
Current Rating /BCA Regulatory Supportiveness
Kyushu Electric Power Company, Incorporated Aa2 Aaa Tokyo Electric Power Company, Incorporated Aa2 Aaa Eesti Energia AS A1/[8] Baa Florida Power & Light Company A1 A Korea Electric Power Corporation A2/[6] Baa CLP Holdings Limited A2 A Northern Illinois Gas Company A2 Baa Oklahoma Gas and Electric Company A2 Baa Wisconsin Power and Light Company A2 A Consolidated Edison Company of New York A3 Baa PECO Energy Company A3 Baa Piedmont Natural Gas Company, Inc. A3 A Progress Energy Carolinas, Inc. A3 A Southern California Edison Company A3 Baa The Southern Company A3 A PG&E Corporation Baa1 Baa Xcel Energy Inc. Baa1 Baa American Electric Power Company, Inc. Baa2 Baa Arizona Public Service Company Baa2 Ba Consumers Energy Company Baa2 Baa Dominion Resources, Inc. Baa2 Baa Duke Energy Corporation Baa2 Baa Emera Incorporated Baa2 A The Empire District Electric Company Baa2 Ba Eskom Holdings Ltd Baa2/[13] Ba Indianapolis Power & Light Company Baa2 Baa Cemig Distribuição S.A. Baa3 Ba FirstEnergy Corp. Baa3 Baa Westar Energy, Inc. Baa3 Baa EDP - Energias do Brasil S.A. Ba1 Ba
Observations and Outliers
As a utility’s regulatory framework is one of the most important drivers of ratings, there are no outliers for this factor among the 30 issuers highlighted for this methodology.
Exhibit __ (MAH-3) Page 37 of 51
87
21 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Results of Mapping Factor 2
Factor 2: Ability to Recover Costs and Earn Returns Factor Weight 25%
Current Rating/BCA
Rate Adjustment and Cost Recovery Mechanisms
Kyushu Electric Power Company, Incorporated Aa2 Aa Tokyo Electric Power Company, Incorporated Aa2 Aa Eesti Energia AS A1/[8] Baa Florida Power & Light Company A1 A Korea Electric Power Corporation A2/[6] Baa CLP Holdings Limited A2 A Northern Illinois Gas Company A2 Baa Oklahoma Gas and Electric Company A2 A Wisconsin Power and Light Company A2 A Consolidated Edison Company of New York A3 A PECO Energy Company A3 Baa Piedmont Natural Gas Company, Inc. A3 A Progress Energy Carolinas, Inc. A3 A Southern California Edison Company A3 Baa The Southern Company A3 A PG&E Corporation Baa1 Baa Xcel Energy Inc. Baa1 A American Electric Power Company, Inc. Baa2 Baa Arizona Public Service Company Baa2 Baa Consumers Energy Company Baa2 Baa Dominion Resources, Inc. Baa2 A Duke Energy Corporation Baa2 A Emera Incorporated Baa2 A The Empire District Electric Company Baa2 Baa Eskom Holdings Ltd Baa2/[13] Ba Indianapolis Power & Light Company Baa2 A Cemig Distribuição S.A. Baa3 Ba FirstEnergy Corp. Baa3 Baa Westar Energy, Inc. Baa3 Baa EDP - Energias do Brasil S.A. Ba1 Ba
Observations and Outliers
Like Factor 1, Regulatory Framework, the ability to recover costs and earn returns is also an important ratings driver for regulated utilities, and it is not surprising that there are no outliers among the 30 issuers highlighted. For this factor, most of the issuers score exactly at their current rating levels, with the remainder scoring within one notch of their actual rating.
Exhibit __ (MAH-3) Page 38 of 51
88
22 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Results of Mapping Factor 3
Factor 3: Diversification Sub-Factor Weights 5% * 5% **
Current
Rating/BCA
Indicated Factor 3 Rating
Market Position
Generation and Fuel
Diversification Kyushu Electric Power Company, Incorporated Aa2 Aa A Aaa
Tokyo Electric Power Company, Incorporated Aa2 Aa A Aaa
Eesti Energia AS A1/[8] B B B
Florida Power & Light Company A1 Baa Baa Baa
Korea Electric Power Corporation A2/[6] Baa Baa A
CLP Holdings Limited A2 A A A
Northern Illinois Gas Company A2 A A N/A
Oklahoma Gas and Electric Company A2 Baa Baa Baa
Wisconsin Power and Light Company A2 Baa Baa Baa
Consolidated Edison Company of New York A3 Baa Baa N/A
PECO Energy Company A3 Baa Baa N/A
Piedmont Natural Gas Company, Inc. A3 A A N/A
Progress Energy Carolinas, Inc. A3 Baa Baa A
Southern California Edison Company A3 Baa Baa A
The Southern Company A3 Baa A Ba
PG&E Corporation Baa1 A Baa Aa
Xcel Energy Inc. Baa1 A A A
American Electric Power Company, Inc. Baa2 Baa A Ba
Arizona Public Service Company Baa2 Baa Baa Baa
Consumers Energy Company Baa2 Baa Baa Baa
Dominion Resources, Inc. Baa2 A A A
Duke Energy Corporation Baa2 Baa A Baa
Emera Incorporated Baa2 Ba Ba Ba
The Empire District Electric Company Baa2 Baa Baa Baa
Eskom Holdings Ltd Baa2/[13] B Ba B
Indianapolis Power & Light Company Baa2 Ba Baa Ba
Cemig Distribuição S.A. Baa3 Ba Ba N/A
FirstEnergy Corp. Baa3 Baa A Baa
Westar Energy, Inc. Baa3 Ba Baa Ba
EDP - Energias do Brasil S.A. Ba1 Baa Baa Baa
Observations and Outliers
Of the 30 issuers highlighted, there are three outliers, including PG&E Corporation as a positive outlier, due to their high degree of generation diversification and the lack of coal in their generation mix, and both Eesti Energia AS and The Southern Company as negative outliers. As an Estonian vertically integrated dominant electric utility, Eesti Energia is exposed to considerably high concentration risk as it operates in one of the smallest CEE emerging markets. The concentration risk is further worsened by the company’s high reliance on one fuel source as its generation is fully based on internationally rare oil shale. Furthermore, as the oil shale generation is relatively CO2 intensive, Eesti Energia is further exposed to the development of CO2 allowance prices. The Southern Company is one of the largest coal generating utility systems in the U.S., with a high percentage of its generation from carbon fuels.
Exhibit __ (MAH-3) Page 39 of 51
89
23 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Results of Mapping Factor 4
Factor 4: Financial Strength, Liquidity and Key Financial Metrics Sub-Factor Weights 10% 7.5% 7.5% 7.5% 7.5%
Current
Rating/BCA
Indicated Factor 4 Rating Liquidity
3 Year Average CFO pre-
WC + Interest/ Interest
3 Year Average
CFO pre-WC / Debt
3 Year Average
CFO pre-WC / Debt
3 Year Average Debt / Cap or
Debt/RAV Kyushu Electric Power Company, Incorporated Aa2 A Aa Aa Ba Ba Baa* Tokyo Electric Power Company, Incorporated Aa2 Baa Aa A Ba Ba Ba* Eesti Energia AS A1/[8] Aa Baa Aaa Aaa Aaa Aa Florida Power & Light Company A1 Aa A Aa Aa Aa A Korea Electric Power Corporation A2/[6] A Baa Aa A A A CLP Holdings Limited A2 A A Aa A Baa A Northern Illinois Gas Company A2 Baa Baa A A Baa Baa Oklahoma Gas and Electric Company A2 A A A A A A Wisconsin Power and Light Company A2 A Baa A A Baa A Consolidated Edison Company of New York A3 Baa A Baa Baa Ba A PECO Energy Company A3 A A A A Baa Baa Piedmont Natural Gas Company, Inc. A3 Baa Baa A Baa Baa Baa Progress Energy Carolinas, Inc. A3 A Baa A A A Baa Southern California Edison Company A3 A A A A A Baa The Southern Company A3 Baa A A Baa Baa Baa PG&E Corporation Baa1 Baa Baa A A A Baa Xcel Energy Inc. Baa1 Baa Baa Baa Baa Baa Baa American Electric Power Company, Inc. Baa2 Baa Baa Baa Baa Baa Ba Arizona Public Service Company Baa2 Baa Baa A Baa Baa Baa Consumers Energy Company Baa2 Baa Baa Baa Baa Baa Ba Dominion Resources, Inc. Baa2 Baa Baa Baa Baa Ba Baa Duke Energy Corporation Baa2 A Baa A A Baa A Emera Incorporated Baa2 Ba Baa Baa Ba Baa B The Empire District Electric Company Baa2 Baa Baa Baa Baa Baa Baa Eskom Holdings Ltd Baa2/[13] Baa Ba Ba A A A Indianapolis Power & Light Company Baa2 Baa Baa A A Baa Baa Cemig Distribuição S.A. Baa3 A Baa Aa Aaa Aa Ba FirstEnergy Corp. Baa3 Baa Baa Baa Baa Baa Ba Westar Energy, Inc. Baa3 Baa Baa Baa Baa Baa Baa EDP - Energias do Brasil S.A. Ba1 Baa Ba Baa Aa A A
*Debt/RAV
Positive Outlier Negative Outlier
Exhibit __ (MAH-3) Page 40 of 51
90
24 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Observations and Outliers
This factor takes into account historic financial statements. Historic results help us to understand the pattern of a utility’s financial and operating performance and how a utility compares to its peers. While Moody’s rating committees and the rating process use both historical and projected financial results, this document makes use only of historic data, and does so solely for illustrative purposes.
While the vast majority of utilities’ key financial metrics map fairly closely to their ratings, there are several significant outliers, which generally fall into two broad groups. The first group is composed of negative outliers and include several utilities located in stable and supportive regulatory environments and are characterized by very low business risk. In these cases, the utilities may have lower financial ratios and higher leverage than most peer companies on a global basis, but still maintain higher overall ratings. In short, the certainty provided by regulatory stability and low business risk offsets any risks that may result from lower financial ratios. Examples of such negative outliers on the financial strength factor include most of the major Japanese utilities, including Tokyo Electric Power and Kyushu Electric Power.
The second group of outliers is composed of positive outliers, whereby several financial ratios are stronger than the overall Moody’s rating. These include several utilities in Latin America, such as Cemig Distribuicao, EDP-Energias do Brasil, and European Eesti Energia, which exhibit strong financial coverage ratios and low debt levels, but where ratings are constrained by a more difficult regulatory or business environment or a sovereign rating ceiling.
Exhibit __ (MAH-3) Page 41 of 51
91
25 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Appendix D: Definition of Ratios
Cash Flow Interest Coverage
(Cash Flow from Operations – Changes in Working Capital + Interest Expense) / (Interest Expense + Capitalized Interest Expense)
CFO pre-WC / Debt
(Cash Flow from Operations – Changes in Working Capital) / (Total debt + operating lease adjustment + under-funded pension liabilities + basket-adjusted hybrids + securitizations + guarantees + other debt-like items)
CFO pre-WC - Dividends / Debt
(Cash Flow from Operations – Changes in Working Capital – Common and Preferred Dividends) / (Total debt + operating lease adjustment + under-funded pension liabilities + basket-adjusted hybrids + securitizations + guarantees + other debt-like items)
Debt / Capitalization or Regulated Asset Value
(Total debt + operating lease adjustment + under-funded pension liabilities + basket-adjusted hybrids + securitizations + guarantees + other debt-like items) / (Shareholders’ equity + minority interest + deferred taxes + goodwill write-off reserve + Total debt + operating lease adjustment + under-funded pension liabilities + basket-adjusted hybrids + securitizations + guarantees + other debt-like items) or RAV
Exhibit __ (MAH-3) Page 42 of 51
92
26 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Appendix E: Industry Overview
The electric and gas utility industry consists of companies that are engaged in the generation, transmission, and distribution of electricity and/or natural gas. While many utilities remain vertically integrated with operations in all three segments, others have functionally or legally unbundled these functions due to legislatively mandated market restructuring or other deregulation initiatives and may be engaged in just one or two of these activities.
The generation of electricity is the first step in the process of producing and delivering electricity to end use customers and typically the most capital intensive, with the largest portion of the industry’s assets consisting of generating plants and related hard assets. Electricity is generated from a variety of fuel sources, including coal, natural gas, or oil; nuclear energy; and renewable sources such as hydro, wind, solar, geothermal, wood, and waste.
Transmission is the high voltage transfer of electricity over long distances from its source, usually the location of a generating plant, to substations closer to end use customers in population or industrial centers. Although many utilities own and operate their own transmission systems, there are also several independent transmission companies included in this methodology.
The distribution of electricity is the process whereby voltage is reduced and delivered from a high voltage transmission system through smaller wires to the end-users, which consist of industrial, commercial, government, or retail customers of the utility. Most of the utilities covered by this methodology are engaged to some degree in the distribution of electricity through “poles and wires” to their end customers. The distribution of natural gas entails the transport of gas from delivery points along major pipelines to customers in their service territory through distribution pipes.
Regulation Plays a Major Role in the Industry
Because of the essential nature of the utility’s end products (electricity and gas), the public policy implications associated with their provision, the demands for high levels of reliability in their delivery, the monopoly status of most service territories, and the high capital costs associated with its infrastructure, the utility industry is generally subject to a high degree of government regulation and oversight. This regulation can take many forms and may include setting or approving the rates or other cost recovery mechanisms that utilities charge for their services (revenue), determining what costs can be recovered through base rates, authorizing returns that utilities earn on their investments, defining service territories, mandating the level and reliability of electricity and gas service that must be provided and enforcing safety standards. From a credit standpoint, the regulators’ ability to set and control rates and returns is perhaps the most important regulatory consideration in determining a rating.
In the U.S., the most important utility regulator for most companies is the individual state agency generally known as the Public Utility Commission or the Public Service Commission. The commissions are comprised of elected or appointed officials in each state who determine, among other things, whether utility expenditures are reasonable and/or prudent and how they should be passed on to consumers through their utility rates. While some states have legislatively mandated certain market restructuring or deregulation initiatives with regard to the generation segment of their electricity markets, the majority of states remain fully regulated, and some states that had deregulated are in the process of “re-regulating” their electricity markets.
The key federal agency governing utilities in the U.S. is the Federal Energy Regulatory Commission (FERC), an independent agency that regulates, among other things, the interstate transmission of electricity and natural gas. The FERC’s responsibilities include the approval of rates for the wholesale sale and transmission of electricity on an interstate basis by utilities, power marketers, power pools, power exchanges, and independent system operators. The Energy Policy Act of 2005 increased the FERC’s regulatory authority in a wide range of areas including mergers and acquisitions, transmission siting, market practices, price transparency, and regional transmission organizations.
Exhibit __ (MAH-3) Page 43 of 51
93
27 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
In Europe, following the implementation of specific policies relating to the liberalization of energy supply within the European Union (EU), the electric utility sector has been evolving toward a model targeting complete separation between network activities, regulated in light of their monopoly nature, and supply and production of energy, fully liberalized and hence unregulated. As a result of this process, most Western European utilities currently operate either as fully regulated entities in the networks segment, or largely unregulated integrated companies (albeit some may still maintain some regulated network activity), and are therefore excluded from the scope of this methodology. Nevertheless, there are countries in Europe where regulatory evolution and transition to competition remain at an earlier stage (Central and Eastern European countries and the Baltic states in particular) and/or are characterized by the remoteness and isolation of their systems (the islands in the Azores and Madeira regions for example). In these countries, Governments and/or Regulators maintain greater influence on the bulk of the utilities’ revenues, thus supporting their inclusion in this methodology.
In Japan, regulation has been an important positive factor supporting utility credit quality. Japan’s regulator makes the maintenance of supply its primary policy objective, followed in priority by environmental protection and finally, allowing market conditions to work. This approach preserves the utilities’ integrated operations and makes them responsible for final supply to users in the liberalized market. The Japanese government is gradually deregulating the utility industry and expanding the liberalized market. However, the pace of deregulation has been moderate so that the regulator can monitor the risks and the effects on the power companies, especially in the context of generation supply security.
In Australia, stable and predictable regulatory regimes continue to underpin the investment-grade characteristics of the sector. So far, regulators – which operate independently from the governments – have not adopted an aggressive stance to revenues and returns as they seek a balance between: appropriate returns for utilities; ongoing incentives for network investments; and appropriate prices for consumers. The supportiveness of the regimes will become increasingly important over the medium term as the sector undertakes investments to expand network capacity and replace ageing assets to meet rising demand.
In Asia Pacific (ex-Japan), regulation of electric utilities is overseen by government regulatory bodies in their respective countries. As such, the stability and regulatory framework can vary to a large extent by country with a few utilizing automatic cost pass through mechanisms while the majority operate with ad hoc tariff adjustments. However, power security remains a key policy objective and regulators continue to seek to ensure stability in regulatory and operating environments. Such regulatory environments are critical to attracting investments for both privatizations and for funding expanding electricity projects. Reform of the power industry in Asia remains slow paced and competition is well contained. Regulators have shown that they will reform in a prudent manner and allow tariff adjustment to minimize any material negative impact on the credit profiles of their power utilities. Such a supportive approach enhances stability and provides a stable regulatory regime which in turn remains a key driver in supporting the cash flows of Asia Pacific (ex-Japan) utilities.
In Canada, regulation of electric and gas utilities is overseen by independent, quasi-judicial provincial or territorial regulatory bodies. Accordingly, the transparency and stability of regulation and the timeliness of regulatory decisions can vary by jurisdiction. However, generally the regulatory frameworks in each jurisdiction are well established and there is a high expectation of timely recovery of cost and investments. Furthermore, Moody’s considers the overall business environment in Canada to be relatively more supportive and less litigious than that of the U.S. Moody’s views the supportiveness of the Canadian business and regulatory environments to be positive for regulated utility credit quality and believes that these factors, to some degree, offset the relatively lower ROEs and higher deemed debt components typically allowed by Canadian regulatory bodies for rate-making purposes. As a result of the relatively low ROEs and higher deemed debt levels that are generally characteristic of Canadian utilities, for a given rating category, these entities often have weaker credit metrics than their international peers.
Exhibit __ (MAH-3) Page 44 of 51
94
28 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
In Latin America, there is a perceived lower level of regulatory supportiveness than in other regions. In Argentina, although the generation industry is deregulated, the government continues to intervene in the process of setting prices and tariffs. In addition, collections from sales to the spot market have only been partial and have depended on the government’s discretion. Moody's views the current regulatory framework as a relatively high risk factor given the government's interference, the unclear regulations, the lack of support for the companies' profitability, and the lack of incentives for much needed long-term investment. Brazil’s power generation companies could also be affected by unfavorable regulatory decisions, since about 75% of its electricity currently goes to the regulated market, but Moody’s last year noted improvements in Brazil’s regulatory environment, which led to several issuer upgrades. Brazil’s regulatory model provides a more supportive environment for acceptable rates of return since the current rules for electric utilities are more transparent and technically driven. Nonetheless, there is a lower assurance of timely recovery of costs and investments in Brazil since the new framework has not yet experienced the stress of high inflation, exchange rate devaluation or electricity rationing. Recent distribution tariff review reductions have typically been in the high-single-digit range, which is considered modest, particularly compared to Moody’s rated issuers in El Salvador (14% reduction) and Guatemala (45% reduction) both of which led to downgrades last year. The regulatory framework in Chile, in Moody’s opinion, comes closest to the United States in terms of regulatory supportiveness.
Exhibit __ (MAH-3) Page 45 of 51
95
29 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Appendix F: Key Rating Issues Over the Intermediate Term
Global Climate Change and Environmental Awareness
Electric and gas utilities will continue to be affected by growing concerns over global climate change and greenhouse gas emissions, which are particularly important in the electricity generation segment which continues to rely on a large number of coal and natural gas fired power plants. There have been significant increases in environmental expenditure estimates among utilities with significant coal fired generation in recent years as policymakers have mandated pollution control measures and emissions limitations in response to public concerns over carbon. These expenditures are likely to continue to increase with the imposition of new and sometimes uncertain requirements with respect to carbon emissions. Utilities may have to implement substantial additional reductions in power plant emissions and could experience progressively higher capital expenditures over the next decade. In the U.S., the planned construction of several new coal plants has been cancelled as a result of opposition from regulators, political leaders, and the public or because cheaper alternatives appeared more compelling due to higher coal plant construction costs.
Large Capital Expenditures and Rising Costs for New Generation and Transmission
While the global recession may have reduced electric demand in certain regions in the short-term, longer-term worldwide demand for electricity is expected to continue to grow and many utilities will incur substantial capital expenditures for new generation, as well as for upgrades and expansions to transmission systems. In the U.S., the Edison Electric Institute projects annual capacity additions among investor-owned utilities to increase to over 15,000 megawatts (MW) in 2009 compared with less than 6,000 MW in 2006. Some of the new plants announced include large, highly capital intensive nuclear plants, which have not been built in the U.S. in many years. In Indonesia, the Fast Track program calls for the addition of 9,000 MW of coal-fired power plants while India plans to build eight ultra-mega power projects (each under 4,000 MW). Similar large nuclear plants are being constructed worldwide in countries as diverse as Bulgaria, China, India, Russia, South Korea, Taiwan and Ukraine. Because of this construction boom, international demand for certain construction materials, plant components and skilled labor has driven up the cost of new nuclear. More recently, the global economic slowdown may relieve some of this cost pressure.
Political and Regulatory Risk
As the utility industry faces higher operating costs, rising environmental compliance expenditures, large capital expenditures for new generation, as well as fuel and commodity price risks, the need for rate relief and other regulatory support will continue to be a key rating factor. In the U.S., political intervention in the regulatory process following particularly large rate increase requests increased risk and negatively affected the credit ratings of utilities in Illinois and Maryland in recent years. In Europe, rising electricity prices two years ago resulted in widespread criticism of utilities in several countries, increasing regulatory and political risk for some of them. In Australia, the transition from state based regulation to a national regulatory framework could pose a moderate level of uncertainty to current regulatory thinking over the longer term. In Asia Pacific (ex-Japan) and Latin America, the governments face political pressure regarding tariff adjustments given their need to balance socio-economic targets and inflationary concerns against the objective of ensuring reliable electricity supply over the long term.
Economic and Financial Market Conditions
Although electric and gas utilities are somewhat resistant (although not immune) to unsettled economic and financial market conditions due partly to the essential nature of the service provided, a protracted or severe recession could negatively affect credit profiles over the intermediate term in several ways. Falling demand for electricity or natural gas could negatively impact margins and debt service protection measures. Poor economic conditions could make it more difficult for regulators to approve needed rate increases or provide timely cost recovery for utilities, resulting in higher cost deferrals and longer regulatory lag. Finally,
Exhibit __ (MAH-3) Page 46 of 51
96
30 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
constrained capital market conditions could severely limit the availability of credit necessary to finance needed capital expenditures, or make such financing plans more expensive.
Appendix G: Regional and Other Considerations
Notching Considerations - Structural Subordination and Holding Company Ratings
Utility corporate structures often include multiple legal entities within a single consolidated organization under an unregulated parent holding company. The holding company typically has one or more regulated operating subsidiaries and may have one or more unregulated subsidiaries as well. Most utility families issue debt at several of these legal entities within the organizational family including the parent holding company and the utility subsidiaries. In such cases, our approach is to assess each issuer on a standalone basis as well as to evaluate the creditworthiness of the consolidated entity. We also consider the interdependent relationships that may exist among affiliates and the degree to which a management team operates its utility subsidiaries as a system. We then assess the degree of legal and regulatory insulation that exists between the generally lower-risk regulated entities and the generally higher-risk unregulated entities.
The degree of notching (or rating differential) between entities in a single family of companies depends on the degree of insulation that exists between the regulated and unregulated entities, as well as the amount of debt at the holding company in comparison to the consolidated entity. If there is minimal insulation or ring-fencing between the parent and subsidiary and little to no debt at the parent, there is typically a one notch differential between the two to reflect structural subordination of the parent company debt compared to the operating subsidiary debt. If there is substantial insulation between the two and/or debt at the parent company is a material percentage of the overall debt, there could be two or more notches between the ratings of the parent and the subsidiary.
U.S. Securitization
Since the late 1990s, legislatively approved stranded cost and other regulatory asset securitization has become an increasingly utilized financing technique among some investor-owned electric utilities. In its simplest form, a stranded cost securitization isolates and dedicates a stream of cash flow into a separate special purpose entity (SPE). The SPE uses that stream of revenue and cash flow to provide annual debt service for the securitized debt instrument. Securitizations were originally done to reimburse utilities for stranded costs following deregulation, which was primarily related to the actual lower market values of the legacy generation compared to its book value. More recently, securitizations have been done to reimburse utilities for storm restoration costs following two active hurricane seasons in the U.S. in 2004 and 2005, with additional securitizations planned following an active 2008 hurricane season, as well as for environmental equipment. In 2007, Baltimore Gas & Electric used securitization to fund supply cost deferrals. Securitization could also be used to help fund the next generation of nuclear plants to be built in the U.S.
Although it often addresses a major credit overhang and provides an immediate source of cash, Moody’s treats securitization debt of utilities as being on-credit debt. In calculating balance sheet leverage, Moody’s treats the securitization as being fully recourse to the utility as accounting guidelines require the debt to appear on the utility’s balance sheet. In looking at cash flow coverages, Moody’s analysis focuses on ratios that include the securitized debt in the company’s total debt as being the most consistent with the analysis of comparable companies. Securitizations also entail transition or other charges on ratepayer bills that may limit a utility’s flexibility to raise rates for other reasons going forward. While our standard published credit ratios include the securitization debt, we also look at the ratios without the securitization debt and cash flow in our analysis, to distinguish this debt and ensure that the benefits of securitization are not ignored.
Exhibit __ (MAH-3) Page 47 of 51
97
31 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Strong levels of government ownership in Asia Pacific (ex-Japan) provide rating uplift
Strong levels of government ownership dominate Asia Pacific (ex-Japan) power utilities and remain one of their key rating drivers. The current majority state ownership levels are expected to remain largely unchanged for the near to medium term, thereby providing rating uplift to a majority of the government-owned Asia Pacific (ex-Japan) utilities under the Joint Default Analysis methodology.
Appendix H: Treatment of Power Purchase Agreements (“PPA’s”)
Although many utilities own and operate power stations, some have entered into PPAs to source electricity from third parties to satisfy retail demand. The motivation for these PPAs may be one or more of the following: to outsource operating risks to parties more skilled in power station operation, to provide certainty of supply, to reduce balance sheet debt, or to fix the cost of power. While Moody’s regards these risk reduction measures positively, some aspects of PPAs may negatively affect the credit of utilities.
Under most PPAs, a utility is obliged to pay a capacity charge to the power station owner (which may be another utility or an Independent Power Producer – IPP); this charge typically covers a portion of the IPP’s fixed costs in relation to the power available to the utility. These fixed payments usually help to cover debt service and are made irrespective of whether the utility requires the IPP to generate and deliver power. When the utility requires generation, a further energy charge, to cover the variable costs of the IPP, will also be paid by the utility. Some other similar arrangements are characterized as tolling agreements, or long-term supply contracts, but most have similar features to PPAs and are thus analyzed by Moody’s as PPAs.4
Factors determining the treatment of PPAs
Because PPAs have a wide variety of financial and regulatory characteristics, each particular circumstance may be treated differently by Moody’s. The most conservative treatment would be to treat the PPA as a debt obligation of the utility as, by paying the capacity charge, the utility is effectively providing the funds to service the debt associated with the power station. At the other end of the continuum, the financial obligations of the utility could also be regarded as an ongoing operating cost, with no long-term capital component recognized. Factors which determine where on the continuum Moody’s treats a particular PPA are as follows:
Risk management: An overarching principle is that PPAs have been used by utilities as a risk management tool and Moody’s recognizes that this is the fundamental reason for their existence. Thus, Moody’s will not automatically penalize utilities for entering into contracts for the purpose of reducing risk associated with power price and availability. Rather, we will look at the aggregate commercial position, evaluating the risk to a utility’s purchase and supply obligations. In addition, PPAs are similar to other long-term supply contracts used by other industries and their treatment should not therefore be fundamentally different from that of other contracts of a similar nature.
Pass-through capability: Some utilities have the ability to pass through the cost of purchasing power under PPAs to their customers. As a result, the utility takes no risk that the cost of power is greater than the retail price it will receive. Accordingly Moody’s regards these PPA obligations as operating costs with no long-term debt-like attributes. PPAs with no pass-through ability have a greater risk profile for utilities. In some markets, the ability to pass through costs of a PPA is enshrined in the regulatory framework, and in others can be dictated by market dynamics. As a market becomes more competitive, the ability to pass through costs may decrease and, as circumstances change, Moody’s treatment of PPA obligations will alter accordingly.
Price considerations: The price of power paid by a utility under a PPA can be substantially below the current spot price of electricity. This will motivate the utility to purchase power from the IPP even if it
4 When take-or-pay contracts, outsourcing agreements, PPAs and other rights to capacity are accounted for as leases under US GAAP or IFRS, they are
treated by Moody’s as such for analytical purposes.
Exhibit __ (MAH-3) Page 48 of 51
98
32 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
does not require it for its own customers, and to sell excess electricity in the spot market. This can be a significant source of cash flow for some utilities. On the other hand, utilities that are compelled to pay capacity payments to IPPs when they have no demand for the power or when the spot price is lower than the PPA price will suffer a financial burden. Moody’s will particularly focus on PPAs that have mark-to-market losses that may have a material impact on the utility’s cash flow.
Excess Reserve Capacity: In some jurisdictions there is substantial reserve capacity and thus a significant probability that the electricity available to a utility under PPAs will not be required by the market. This increases the risk to the utility that capacity payments will need to be made when there is no demand for the power. For example, Tenaga, the major Malaysian utility, purchases a large proportion of its power requirement from IPPs under PPAs. PPA payment totaled 42.0% of its operating costs in FY2008. In a high reserve margin environment existing in Malaysia, capacity payment under these PPAs are a significant burden on Tenaga, and some account must be made for these payments in its financial metrics.
Risk-sharing: Utilities that own power plants bear the associated operational, fuel procurement and other risks. These must be balanced against the financial and liquidity risk of contracting for the purchase of power under a PPA. Moody’s will examine on a case-by case basis which of these two sets of risk poses greatest concern from a ratings standpoint.
Default provisions: In most cases, a default under a PPA will not cross-default to the senior facilities of the utility and thus it is inappropriate to add the debt amount of the PPA to senior debt of the entity. The PPA obligations are not senior obligations of the utility as they do not behave in the same way as senior debt. However, it may be appropriate in some circumstances to add the PPA obligation to Moody’s debt, in the same way as other off-balance sheet items.5
Accounting: From a financial reporting standpoint, very few PPA’s have thus far resulted in IPP’s being consolidated by the off taker. Similarly, very few PPA’s are treated as lease obligations. Due to upcoming accounting rule changes6, however, coupled with many contracts being renegotiated and extended over the next several years, we expect to see an increasing number of projects being consolidated or PPA’s accounted for as leases on utility financial statements. Many of the factors assessed in the accounting decision are the same as in our analysis, i.e. risk and control. However, our analysis also considers additional factors that the accountants may not, such as the ability to pass through costs. We will consider the rationale behind the accounting decision and compare it to our own analysis and may not necessarily come to the same conclusion as the accountants.
Each of these factors will be weighed by Moody’s analysts and a decision will be made as to the importance of the PPA to the risk analysis of the utility.
Methods of accounting for PPAs in our analysis
According to the weighting and importance of the PPA to each utility and the level of disclosure, Moody’s may analytically assess the total debt obligations for the utility using one of the methods discussed below.
Operating Cost: If a utility enters into a PPA for the purpose of providing an assured supply and there is reasonable assurance that regulators will allow the costs to be recovered in regulated rates, Moody’s may view the PPA as being most akin to an operating cost. In this circumstance, there most likely will be no imputed adjustment to the debt obligations of the utility. In the event operating costs are consolidated, we will attempt to deconsolidate these costs from a utility’s financial statements.
Annual Obligation x 6: In some situations, the PPA obligation may be estimated by multiplying the annual payments by a factor of six (in most cases). This method is sometimes used in the capitalization of operating leases. This method may be used as an approximation where the analyst determines that the obligation is significant but cannot be quantified otherwise due to limited information.
5 See “The Analysis of Off-Balance Sheet Exposures – A Global Perspective”, Rating Methodology, July 2004. 6 SFAS 167 “Amendments to FASB Interpretation No. 46(r)” will be effective Q1 2010.
Exhibit __ (MAH-3) Page 49 of 51
99
33 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Net Present Value: Where the analyst has sufficient information, Moody’s may add the NPV of the stream of PPA payments to the debt obligations of the utility. The discount rate used will be the cost of capital of the utility.
Debt Look-Through: In some circumstances, where the debt incurred by the IPP is directly related to the off-taking utility, there may be reason to allocate the entire debt (or a proportional part related to share of power dedicated to the utility) of the IPP to that of the utility.
Mark-to-Market: In situations in which Moody’s believes that the PPA prices exceed the spot price and thus a liability is arising for the utility, Moody’s may use a net mark-to-market method, in which the NPV of the net cost to the utility will be added to its total debt obligations.
Consolidation: In some instances where the IPP is wholly dedicated to the utility, it may be appropriate to consolidate the debt and cash flows of the IPP with that of the utility. Again, if the utility purchases only a portion of the power from the IPP, then that proportion of debt might be consolidated with the utility.
In some circumstances, Moody’s will adopt more than one method to estimate the potential obligations imposed by the PPA. This approach recognizes the subjective nature of analyzing agreements that can extend over a long period of time and can have a different credit impact when regulatory or market conditions change. In all methods the Moody’s analyst will account for the revenue from the sale of power bought from the IPP. We will focus on the term to maturity of the PPA obligation, the ability to pass through costs and curtail payments, and the materiality of the PPA obligation to the overall cash flows of the utility in assessing the effect of the PPA on the credit of the utility.
Moody’s Related Research
Industry Outlooks: U.S. Regulated Electric Utilities, Six-Month Update, July 2009 (118776)
U.S. Investor-Owned Electric Utility Sector, January 2009 (113690)
EMEA Electric and Gas Utilities, November 2008 (112344)
North American Natural Gas Transmission & Distribution, March 2009 (115150)
Rating Methodologies: Unregulated Utilities and Power Companies, August 2009 (118508)
Regulated Electric and Gas Networks, August 2009 (118786)
Special Comments: Credit Roadmap for Energy Utilities and Power Companies in the Americas, March 2009 (115514)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.
Exhibit __ (MAH-3) Page 50 of 51
100
34 August 2009 Rating Methodology Moody’s Global - Regulated Electric and Gas Utilities
Rating Methodology Moody's Global Infrastructure Finance
Regulated Electric and Gas Utilities
Analyst Contacts (continued): London 44.20.7772.5454 Raffaella Altamura Analyst
Monica Merli Team Managing Director
Hong Kong 852.3551.3077 Jennifer Wong Assistant Vice President - Analyst
Gary Lau Senior Vice President Sydney 61.2.9270.8100 Clement Chong Vice President – Senior Analyst Terry Fanous Senior Vice President Brian Cahill Managing Director/Australia
Tokyo 81.3.5408.4100 Kenji Okamoto Vice President – Senior Analyst
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. © Copyright 2009, Moody’s Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to
Report Number: 118481
Author Associate Analyst Production Specialist Michael G. Haggarty Mitchell Moss Yelena Ponirovskaya
Exhibit __ (MAH-3) Page 51 of 51
101
T
estimony of
H
R P
anel
Before the Public Service Commission
NIAGARA MOHAWK POWER CORPORATION d/b/a NATIONAL GRID
Direct Testimony
Of
The Human Resources Panel
102
Testimony of the Human Resources Panel
Page 1 of 63
Q. Please state your name and business address. 1
A. My name is Maureen P. Heaphy. My business address is One MetroTech 2
Center, Brooklyn, New York 11201. 3
4
Q. By whom are you employed and in what capacity? 5
A. I am employed by National Grid Corporate Services, LLC and currently 6
hold the position of Vice President of U.S. Compensation, Benefits and 7
Pensions. My responsibilities include overseeing compensation, benefit 8
and pension strategy and policy for all of National Grid plc’s (“National 9
Grid”) US operations, including Niagara Mohawk Power Corporation 10
d/b/a National Grid (“Niagara Mohawk” or “Company”). 11
12
Q. Please describe your educational background and business 13
experience. 14
A. I received Bachelor of Science degrees in Accounting and Computer 15
Applications & Information Systems from New York University in 1983. 16
In 1991, I received a Master of Business Administration in Finance from 17
St. John’s University. I joined KeySpan Corporation in 1983 and held 18
several professional and managerial positions in Treasury and Accounting. 19
In 1991, I joined the Human Resources organization where my focus has 20
103
Testimony of the Human Resources Panel
Page 2 of 63
been on design, strategy, administration, and implementation of 1
compensation, benefit and pension programs for employees and retirees. 2
3
Q. Have you previously testified before the New York State Public 4
Service Commission (“Commission”) or any other regulatory 5
commissions? 6
A. Yes. I testified on behalf of the Company before the Commission in Case 7
10-E-0050 (the “2010 Electric Rate Case”). I have also submitted 8
testimony before the Federal Energy Regulatory Commission on behalf of 9
National Grid Generation, LLC concerning matters related to employee 10
benefits and compensation. 11
12
Q. Please state your name and business address. 13
A. My name is Janet Fuersich. I am employed by Towers Watson at 875 14
Third Avenue, New York, New York, 10022. 15
16
Q. Please describe your education and professional background. 17
A. I was with Towers Watson as a full-time employee for over 16 years and 18
have served as a part-time contractor since January 2010. During that 19
time I have had several roles in the Compensation Group. I have led the 20
East Region Compensation Group and currently I work with clients in all 21
104
Testimony of the Human Resources Panel
Page 3 of 63
industries on compensation consulting issues. A majority of my 1
experience is in utilities and energy services. I received a Bachelor of Arts 2
from Queens College, City University of New York and a Master of 3
Business Administration from Fordham University. 4
5
Q. Please describe Towers Watson. 6
A. Towers Watson is one of the world’s largest management and human 7
resources consulting firms, helping organizations manage their investment 8
in people to achieve measurable performance improvements. The firm’s 9
Compensation and Rewards and Benefits segments are among the largest 10
in North America. Towers Watson has numerous dedicated 11
compensation, human resources, and benefits practitioners specializing in 12
the energy and utility industries. 13
14
Q. Mr. Goudelias, please state your name and business address. 15
A. My name is John Goudelias. My business address is 44 South Broadway, 16
White Plains, New York 10601. 17
18
Q. By whom are you employed and in what capacity? 19
A. I am employed by Towers Watson as a consultant in the benefits database 20
department, currently known as Benefits Data Services. 21
105
Testimony of the Human Resources Panel
Page 4 of 63
Q. Please describe your educational background and business 1
experience. 2
A. I have been with Towers Watson for over 24 years. I received a Master of 3
Business Administration degree from Fordham University and a 4
Bachelor’s Degree from Hofstra University. My group is responsible for 5
over 100 benchmarking studies throughout the year, including studies for 6
energy services, chemical, health care, high-tech, petroleum and retail 7
industries. 8
9
Q. What is the purpose of your testimony? 10
A. The Panel’s testimony is being submitted in support of Niagara Mohawk’s 11
electric and gas base rate filings and specifically to: (i) support the overall 12
level of employee compensation, benefit and pension costs reflected in the 13
Company’s revenue requirements by demonstrating that National Grid’s 14
overall compensation package is market competitive, and that National 15
Grid has proactively managed and controlled the costs of its 16
compensation, benefit and pension programs; (ii) explain how National 17
Grid’s restructuring efforts have affected the overall employee headcount 18
during the year ended December 31, 2011 (the “Historic Test Year”), the 19
twelve months ending March 31, 2014 (the “Rate Year”) and the twelve 20
months ending March 31, 2015 and March 31, 2016, respectively (the 21
106
Testimony of the Human Resources Panel
Page 5 of 63
“Data Years”) relevant to this proceeding; and (iii) explain how the 1
Company will establish the market cost of various positions that may be 2
filled by “expatriates” who are employees of National Grid plc in the 3
United Kingdom and are serving in positions in National Grid’s operations 4
in the United States. 5
6
The Panel’s testimony addresses and supports the Company’s employee 7
compensation, benefit and pension costs, including those associated with 8
medical, dental, life insurance, pension and other post-employment benefit 9
(“OPEB”) plans for the Historic Test Year and the Rate Year, as well as 10
the Data Years. The information concerning projected cost changes has 11
been provided to the Revenue Requirements Panel and was used to 12
develop the electric and gas revenue requirements proposed by the 13
Company. 14
15
The Panel demonstrates that the costs of the total compensation, benefit 16
and pension programs included in the Company’s revenue requirements, 17
which include the costs of base salary and performance-based variable pay 18
and various benefits, are reasonable and necessary and must be incurred 19
by the Company to meet its obligations to provide safe and reliable utility 20
service to its customers. To that end, the Panel will explain and support a 21
107
Testimony of the Human Resources Panel
Page 6 of 63
detailed study of the Company’s total compensation and benefit programs 1
for its management workforce as well as analyses of the compensation and 2
benefits provided to the Company’s union workforce. The results of these 3
studies demonstrate that the Company’s total overall compensation and 4
benefit programs are reasonable and market competitive. The Panel also 5
explains specifically why the costs of the variable pay plan should be 6
included in the revenue requirements and how that plan is structured to 7
align the interests of the Company with its customers. 8
9
In addition, the Panel describes the impact of National Grid’s recent U.S. 10
Restructuring program on National Grid’s workforce. We also discuss 11
National Grid’s ongoing efforts to monitor and control the costs of various 12
elements of the Company’s employee compensation, benefit and pension 13
package. Finally, the Panel discusses how the Company will establish the 14
market cost of positions held by expatriates for the purpose of 15
implementing National Grid’s policy of including in the Company’s 16
revenue requirements the lesser of the actual cost of the expatriate 17
employee’s compensation or the market cost that would be paid to a US-18
based employee. 19
20
Q. Does the Panel sponsor any exhibits as part of this testimony? 21
108
Testimony of the Human Resources Panel
Page 7 of 63
A. Yes, the Panel is sponsoring the following exhibits, which were prepared 1
or compiled under its direction and supervision: 2
(i) Exhibit __ (HRP-1) sets forth a list of non-enduring roles as of 3
December 31, 2011; 4
(ii) Exhibit __ (HRP-2) sets forth a list of vacant positions as of December 5
31, 2011 that are projected to be filled before the beginning of the Rate 6
Year; 7
(iii) Exhibit __ (HRP-3) sets forth Towers Watson’s comprehensive 8
evaluation of National Grid USA’s compensation and benefits for 9
management (non-union) employees. This exhibit consists of the 10
following schedules: 11
Schedule 1 – Competitive Assessment of National Grid’s Total 12
Compensation and Benefits Package; 13
Schedule 2 – Target Compensation and Target Variable Pay as a 14
Percent of Market Assessment; and 15
Schedule 3 – BENVAL Analysis for Management Benefits 16
(iv) Exhibit __ (HRP-4) sets forth information provided by Towers 17
Watson concerning increases in management base salary costs during the 18
relevant periods as well as historical information concerning increases in 19
cash compensation provided by National Grid since 2002. This exhibit 20
consists of the following schedules: 21
109
Testimony of the Human Resources Panel
Page 8 of 63
Schedule 1 – Market Merit Increases; and 1
Schedule 2 – 10 Year Wage Increase History 2
(v) Exhibit __ (HRP-5) sets forth evaluations of Niagara Mohawk’s 3
compensation and benefits for union employees. This exhibit consists of 4
the following schedules: 5
Schedule 1 – Union Wage Comparison; and 6
Schedule 2 – BENVAL Analysis for Union Benefits 7
(vi) Exhibit __ (HRP-6) sets forth a list of positions that either were filled 8
by expatriates during the Historic Test Year and will be filled by 9
expatriates during the Rate Year and the market compensation level 10
established for each of those positions. 11
12
Q. How is the oversight of the human resources function conducted at 13
National Grid? 14
A. The oversight of National Grid’s compensation, benefit and pension plans 15
is performed on a centralized basis and, with certain limited exceptions, 16
uniform compensation, benefit and pension packages have been instituted 17
for all of National Grid’s US-based operations, including Niagara 18
Mohawk. As discussed in the testimony of the Service Company Panel, 19
National Grid is proceeding with the consolidation of four service 20
110
Testimony of the Human Resources Panel
Page 9 of 63
companies into two, but this will not affect the way compensation, 1
benefits and pensions are overseen. 2
3
Q. Is a portion of the Company’s workforce unionized? 4
A. Yes. The majority of the Company’s employees are members of the 5
International Brotherhood of Electric Workers Local 97 (“IBEW”). The 6
total compensation for these workers is determined by collective 7
bargaining. 8
9
Q. Has National Grid recently restructured the management of its U.S. 10
operations? 11
A. Yes. In 2011, National Grid restructured its US operations in a manner 12
that was intended to achieve as efficient a management structure as 13
possible, while continuing to enable National Grid to meet its obligations 14
to provide safe, adequate and reliable service in all of its U.S. 15
jurisdictions. The goal of the restructuring was to better align the cost of 16
National Grid’s US operations with the revenue its US operating 17
companies are recovering. The restructuring has resulted or will result in 18
the elimination of approximately 1,400 positions. The restructuring will 19
effectuate a considerable “flattening” of National Grid’s management 20
structure. The restructuring is described in greater detail in the testimony 21
111
Testimony of the Human Resources Panel
Page 10 of 63
of Kenneth Daly, the Service Company Panel and the Revenue 1
Requirements Panel. 2
3
Q. As a result of the recent restructuring, does the Company’s workforce 4
at December 31, 2011 include employees whose positions will be 5
eliminated prior to the Rate Year? 6
A. Yes. As a consequence of the restructuring, the National Grid 7
management workforce at December 31, 2011 includes 137 positions that 8
are characterized as “non-enduring roles.” Exhibit __ (HRP-1) sets forth a 9
list of these non-enduring roles. These are positions that are being 10
eliminated. Many of these non-enduring roles are related to the 11
development and implementation of the Company’s US Foundation 12
Project, which is described in greater detail in the testimony of the 13
Information Services Panel. The removal of the costs of these positions 14
from the Company’s revenue requirements is discussed in the testimony of 15
the Revenue Requirements Panel. 16
17
Q. Does the Company’s revenue requirements also include costs 18
associated with management positions that (i) were created by the 19
restructuring, (ii) were vacant as of the end of the Historic Test Year, 20
and (iii) are expected to be filled before the Rate Year? 21
112
Testimony of the Human Resources Panel
Page 11 of 63
A. Yes, there are 118 vacancies in management positions that National Grid 1
forecasts to be filled prior to the start of the Rate Year beginning April 1, 2
2013. Exhibit __ (HRP-2) sets forth a list of these positions. Since 3
December 31, 2011 and, as of March 26, 2012, 91 of these vacant 4
positions have been filled. The positions that are still vacant as of March 5
26, 2012 are provided in Exhibit__(HRP-2). The Company plans to 6
update the list of positions set forth on Exhibit __ (HRP-2) as the case 7
proceeds so that the Commission can determine that these positions will 8
actually be filled prior to the Rate Year. The inclusion of the costs of 9
these positions in Niagara Mohawk’s revenue requirements is discussed in 10
the testimony of the Revenue Requirements Panel. 11
12
Q. Please provide an overview of the management positions that are 13
projected to be filled prior to the Rate Year. 14
A. From a functional perspective, the positions projected to be filled, as set 15
forth on Exhibit __ (HRP-2), are in the following areas: 16
(i) operations – 57 positions; 17
(ii) customer service – 24 positions; 18
(iii) network strategy – 14 positions; 19
(iv) finance – 4 positions; and 20
(iv) other administration – 19 positions. 21
113
Testimony of the Human Resources Panel
Page 12 of 63
The vacant positions that have been created in the new organization 1
require individual skill sets that in many cases have required, or will 2
require, National Grid to look for qualified employees outside the 3
organization. As discussed above, National Grid believes that by filling 4
these positions it will implement a highly efficient management structure 5
that will enable it to continue to provide safe, adequate and reliable service 6
in all of its US jurisdictions. 7
8
Q. Does National Grid have any other open positions that affect the 9
Company’s revenue requirements and are forecast to be filled before 10
the Rate Year? 11
A. Yes. National Grid expects to fill 26 incremental positions associated with 12
ongoing operation of the US Foundation Project. The need for these 13
employees is discussed in the testimony of the Information Systems Panel. 14
National Grid also projects that one position associated with Distributed 15
Generation SIR Standards will be filled prior to the Rate Year. The need 16
for this position is discussed by the Shared Services and Customer Panel. 17
Finally, National Grid projects that 6 seasonal positions that perform Leak 18
Survey and Atmosphere Corrosion Inspections will be filled prior to the 19
Rate Year. The need for these positions is discussed by the Gas 20
Infrastructure and Operations Panel. 21
114
Testimony of the Human Resources Panel
Page 13 of 63
Q. Does the Company’s union workforce also have vacant positions as 1
of the end of the Historic Test Year that are projected to be filled 2
before the beginning of the Rate Year? 3
A. Yes. The Company had 61 union positions that were vacant as of 4
December 31, 2011. These 61 positions comprise 32 positions that reflect 5
minimum staffing levels established in the Company’s collective 6
bargaining agreement, as well as 29 additional positions that the Company 7
plans to staff. These vacant union positions are discussed in the Electric 8
Infrastructure and Operations Panel testimony. 9
10
Q. Are there any other adjustments to National Grid’s management and 11
union workforces as of December 31, 2011 that should be made to 12
arrive at a representative workforce level in the Rate Year? 13
A. Yes. Additional adjustments should be made to eliminate (i) 100 14
management employees and 211 union employees who were on long term 15
leave as of December 31, 2011 and are not expected to return, and (ii) 55 16
management employees and 113 union employees who either have left or 17
will leave as a result of the sale of National Grid’s New Hampshire 18
operations. The adjustments to the revenue requirements associated with 19
these employees are discussed by the Revenue Requirements Panel. 20
21
115
Testimony of the Human Resources Panel
Page 14 of 63
Q. Please describe National Grid’s philosophy concerning employee 1
wages and benefits. 2
A. National Grid’s overall approach to compensation is designed to ensure 3
that (i) a significant portion of employee compensation is tied to the 4
attainment of performance goals that create benefits for customers and are 5
consistent with the policy goals established by National Grid’s regulators, 6
(ii) employees’ total compensation is comparable to median compensation 7
for comparable positions in both general industry and the utility industry 8
and is reasonable after considering base and variable pay and benefits on 9
an aggregate basis, and (iii) variable pay is based on both the overall 10
performance of National Grid and the performance of each individual in 11
achieving goals that are tied to the attainment of customer satisfaction, 12
safety and reliability objectives. To provide safe, reliable and efficient 13
utility service to its customers, National Grid must attract, retain and 14
engage high performing, qualified personnel. To accomplish this, 15
National Grid provides a total compensation package that recognizes and 16
rewards excellence, maintains fair and competitive market pay and 17
benefits for employees, and encourages employees to improve skills while 18
providing a safe working environment. Doing so under the cost 19
containment pressures faced by all companies is a critical challenge. To 20
meet this challenge, National Grid has developed a “Total Rewards 21
116
Testimony of the Human Resources Panel
Page 15 of 63
Program” to provide employees with an overall compensation, benefit and 1
pension package that is market competitive, offers flexibility and choice, 2
and supports a high performance culture by directly linking performance 3
to rewards. By maintaining a comprehensive and competitive approach to 4
total rewards that establishes appropriate levels of pay and benefits, 5
National Grid can attract and retain a high quality workforce and motivate 6
employees to perform at high levels. 7
8
Q. What are the elements of the total reward package? 9
A. The compensation elements of the total reward package are cash 10
compensation, which includes both fixed and variable pay, and a number 11
of benefits, which include medical and dental plans, life insurance, a 12
401(k) savings plan, pensions, other post-employment benefits, vacations 13
and holidays. It is National Grid’s philosophy to require employees to 14
share the costs of certain benefits, consistent with market practice. 15
16
Q. Please describe National Grid’s efforts to ensure the reasonableness of 17
the cost of the wages and benefits it offers to employees. 18
A. As part of its effort to provide a market competitive package while 19
controlling the cost of compensation, benefit and pension programs, 20
National Grid monitors the marketplace to ensure that its cash 21
117
Testimony of the Human Resources Panel
Page 16 of 63
compensation and benefit programs are both cost-effective and sufficient 1
to enable it to attract, retain and engage the highly skilled workforce 2
needed to deliver excellent customer service and achieve the financial 3
success required by the capital markets. Specifically, National Grid 4
utilizes the services of Towers Watson to provide information concerning 5
the overall competitiveness of its compensation and benefits package. 6
7
Q. Did Towers Watson recently conduct a study of the competitiveness of 8
the overall compensation packages offered by National Grid to its 9
management employees? 10
A. Yes. Towers Watson recently conducted a study of the competitiveness of 11
the overall compensation package offered by National Grid to its 12
management workforce. This study involved analyses of the total cash 13
compensation (fixed and variable) and employee benefits package offered 14
by National Grid. On an overall basis, this study concluded that the value 15
of National Grid’s overall compensation, benefit and pension package is 16
slightly below the median value of the peer group’s package, but generally 17
within the 10% corridor that is considered the zone of reasonableness. 18
The results of the management study are set forth on Exhibit __ (HRP-3). 19
20
118
Testimony of the Human Resources Panel
Page 17 of 63
Q. Please explain how Towers Watson performed its study of the 1
competitiveness of National Grid’s management compensation. 2
A. Towers Watson compared the total management compensation and 3
benefits package provided by National Grid to the total management 4
compensation and benefits packages provided by 38 peer companies. 5
These peer companies include companies that are combination gas and 6
electric companies (e.g., Consolidated Edison Company of New York, 7
Inc., Constellation Energy Group, Inc.), utility companies that operate 8
outside the energy business (e.g., American Water, Verizon), and general 9
businesses that have significant workforces in the United States (e.g., 3M, 10
American Express Company, Citigroup). While many of these companies 11
are comparable in size to National Grid in terms of revenues, some are 12
smaller and some are larger. 13
14
Q. Does the peer group provide a representative sample of the types of 15
entities that National Grid competes with to attract management 16
employees? 17
A. Yes. On an overall basis, it is reasonable to compare National Grid’s total 18
management compensation package to the companies set forth in the peer 19
group used by Towers Watson. National Grid believes that if its total 20
compensation package falls within a 10 percent corridor (90%-110%) of 21
119
Testimony of the Human Resources Panel
Page 18 of 63
the median level of these companies then that overall package is 1
reasonably designed to enable National Grid to attract and retain highly 2
qualified management employees. While the results of the study show 3
that National Grid’s total compensation package is slightly below median, 4
National Grid is proposing certain adjustments, discussed more fully later 5
in this testimony, that will ensure that National Grid’s compensation will 6
continue to approach the median level. 7
8
Q. Please explain how Towers Watson performed its comparison of the 9
total compensation package provided by National Grid to that 10
provided by the peer group companies. 11
A. This comparison was performed by analyzing (i) the total cash 12
compensation, including both fixed and variable pay, provided to 13
employees in approximately 81% of the total management positions at 14
National Grid to the total compensation, including both fixed and variable 15
pay, provided by the peer group companies, and (ii) the relative value of 16
the benefits provided to National Grid employees in comparison to the 17
relative value of the benefits provided by the peer group. The positions 18
evaluated by Towers Watson represent approximately 4,400 employees of 19
National Grid’s total management workforce of approximately 5,170 20
employees as of October 2011. The results of these comparisons were 21
120
Testimony of the Human Resources Panel
Page 19 of 63
then added to arrive at the total compensation and benefits value. The 1
result of the total compensation study is that National Grid’s total package 2
of management compensation is generally close to the median level of the 3
peer group, as shown by Schedule 1 of Exhibit __ (HRP-3). 4
5
Q. Please explain why Towers Watson’s study compares the relative 6
value of National Grid’s total compensation to the relative value of the 7
total compensation provided by the peer group. 8
A. The purpose of performing an overall compensation study is to determine 9
whether the total level of cash compensation and benefits is sufficient to 10
attract a highly qualified workforce. From this perspective, cash 11
compensation – fixed and variable – is best analyzed by comparing the 12
cash compensation provided to various positions at National Grid to cash 13
compensation provided by other companies to comparable positions. In 14
this case, Towers Watson has analyzed the cash compensation provided by 15
members of the peer group to management positions that fall within 16
various salary bands to the equivalent cash compensation provided to the 17
equivalent positions at National Grid. The comparison of total 18
compensation for various benchmarked positions produces an overall 19
comparison of cash compensation that permits National Grid to evaluate 20
whether management positions within various salary bands are receiving a 21
121
Testimony of the Human Resources Panel
Page 20 of 63
reasonable (i.e. within the 10% corridor of the median) level of cash 1
compensation that will ensure that National Grid remains competitive in 2
the labor market. The results of these analyses are in Schedule 2 of 3
Exhibit __ (HRP-3). 4
5
In contrast, acquiring information concerning the costs of various 6
employee benefits and comparing those costs is very difficult if not 7
impossible. The reason for this is that the cost of various benefits can vary 8
dramatically from year to year and from company to company. For 9
example, the cost of pension and OPEBs can change as a result of changes 10
in the funded status of the plans established to provide those benefits, the 11
investment performance of the plans, and the mortality rate of those 12
participating in the plan. Similarly, the cost of health insurance can vary 13
because of the claims experience of individual companies and the age and 14
health of individual employees in the workforce and their dependents. 15
Changes in costs associated with these factors do not determine whether 16
the benefits being provided by a particular company are competitive. 17
Instead, it is the relative value of the benefits that provides the proper 18
measurement of whether a benefits package is sufficient to attract, retain 19
and engage highly qualified personnel. The analyses performed by 20
122
Testimony of the Human Resources Panel
Page 21 of 63
Towers Watson properly consider the relative value of the benefits being 1
provided by National Grid and the peer group. 2
3
Q. How did Towers Watson determine the relative value of the benefits 4
package provided by National Grid and the peer group? 5
A. The relative value of the various benefits is established based on a 6
common set of actuarial assumptions and a single employee population. 7
This establishes a controlled environment in which differences in value are 8
exclusively a function of the differences in benefit plan provisions. The 9
relative value of various benefits is determined by dividing the value of 10
particular benefits for individual companies by the average value of all the 11
companies in the peer group. Relative values are developed for each 12
benefit and for the entire benefit plan. 13
14
Q. Are all of the elements of National Grid’s compensation package – 15
fixed compensation, variable compensation and benefits – necessary 16
elements of its overall compensation package? 17
A. Yes. National Grid’s overall management compensation package is 18
designed to be competitive with the marketplace. It is the total 19
compensation package – fixed cash compensation, variable pay, benefits 20
and pension – that permits National Grid to be competitive with the 21
123
Testimony of the Human Resources Panel
Page 22 of 63
marketplace. The fixed component of National Grid’s cash compensation 1
package along with the benefits package is not sufficient to be competitive 2
with the marketplace. It is the combination of fixed and variable pay and 3
all other benefits that permits National Grid’s compensation to approach 4
competitive levels. If National Grid did not provide variable pay, it likely 5
would not be able to attract the caliber of employees it seeks to hire 6
because its compensation package would not be competitive. Indeed, if 7
National Grid did not have variable pay as a component of its 8
compensation package, its package would only be 81% of the median 9
compensation, as noted in Schedule 1 of Exhibit __ (HRP-3). 10
11
Q. In addition to the analyses of total compensation being presented in 12
this case, does National Grid also undertake analyses of various 13
individual elements of its compensation to ensure that these individual 14
elements remain competitive with the marketplace? 15
A. Yes. While it is important that National Grid’s total compensation 16
package remain competitive with the marketplace, it is also important that 17
individual elements of the compensation package remain competitive as 18
well. Thus, National Grid also undertakes efforts to ensure that (i) its total 19
cash compensation (fixed and variable pay); and (ii) various benefits, such 20
as healthcare and retirement benefits individually, track the market. 21
124
Testimony of the Human Resources Panel
Page 23 of 63
National Grid needs to stay abreast of what workers want in today’s labor 1
market. To that end, in addition to ensuring that its overall compensation 2
is reasonable, National Grid utilizes the services of Towers Watson to 3
ensure that its total cash compensation (fixed and variable) is at or near 4
median levels as compared to our peer group, and that its various key 5
benefits remain at that level as well. Analyses of individual elements of 6
National Grid’s compensation and benefits package are included in 7
Schedules 2 and 3 of Exhibit __ (HRP-3). As can be seen from the data 8
provided in the Schedule, National Grid is currently in a competitive 9
position with respect to total cash compensation, and total benefits. 10
11
Q. Please describe how National Grid monitors the marketplace for 12
benefits. 13
A. In addition to the total compensation studies provided by Towers Watson, 14
National Grid participates in both industry groups and benefit councils to 15
learn best practices and stay abreast of market developments. National 16
Grid also seeks new ideas and best practices from its vendors. Finally, 17
representatives of National Grid attend conferences and participate in 18
webinars with respect to these matters. 19
20
125
Testimony of the Human Resources Panel
Page 24 of 63
Q. The Panel mentioned that the total compensation of employees is 1
intended, on average, to approximate median compensation levels. Do 2
individual employee salaries deviate from these levels? 3
A. Yes. Individual salaries deviate above and below the median levels based 4
on individual performance and length of time in a position. 5
6
Q. Is the officer compensation program similar in philosophy and 7
operation to the management cash compensation program? 8
A. Yes. The approach taken with respect to officer compensation is basically 9
the same as described for the management employee program. Overall 10
compensation for officers, including National Grid’s top officers, is 11
benchmarked to median compensation of an appropriate peer group and 12
includes a variable pay component. For purposes of preparing the revenue 13
requirements, the Company has included payroll expense for only the 14
fixed, base pay and benefit component of the compensation package for 15
the top officers, referred to as Band A employees. The variable pay 16
component for National Grid’s officers in Band A is not included in the 17
revenue requirements. 18
19
Q. Please describe the “Banded” approach to overall compensation. 20
126
Testimony of the Human Resources Panel
Page 25 of 63
A. National Grid’s compensation structure comprises 6 bands. Band A 1
consists of the top officers, such as executive and senior vice presidents. 2
Band B consists of less senior officers (vice presidents). Band C is 3
primarily for directors who report directly to an officer. Band D is for 4
managers who have at least one direct report and may directly report to an 5
officer. Band E is for supervisors who must have at least one direct report 6
and who report to a director or manager. Band F is for general 7
administrative staff. Bands D, E and F are also for individual employees 8
with unique career paths. Each band has a salary range that consists of a 9
minimum and a maximum salary as well as multiple market reference 10
points within the band. The market reference points track the varying 11
level of compensation for positions within the bands. The structure is 12
reviewed annually by the Human Resources organization. The band 13
structure employed by National Grid generally corresponds to the market 14
study prepared by Towers Watson in analyzing National Grid’s total 15
compensation. 16
17
Q. Please describe National Grid’s variable pay program. 18
A. National Grid’s variable pay program is known as the Annual 19
Performance Plan (the “Plan”). As discussed above, this Plan is a critical 20
element of National Grid’s total compensation package. The purpose of 21
127
Testimony of the Human Resources Panel
Page 26 of 63
the Plan is to ensure that employees are working toward common goals 1
that incorporate the perspective of customers and regulators and that high 2
performance is recognized. The Plan is intended to motivate employees to 3
achieve the highest possible individual performance, while ensuring that, 4
at all times, all safety, health, and environmental requirements are adhered 5
to, and standards of customer service are achieved. 6
7
Q. Please elaborate on the goals established under the Plan. 8
A. In the past, the goals of the variable pay plan were focused on financial 9
measures as well as on individual employee goals. For the 2012-13 10
performance year, the goals of the plan were modified to include clearer 11
linkage between the variable compensation plan and customer satisfaction. 12
As a result, National Grid has included customer responsiveness, safety 13
and reliability, stewardship and optimization of cost of service measures 14
for all employees in the Plan. These measures are critical to how National 15
Grid runs its business. So much so, that they have replaced the earnings, 16
cash flow and operating profit targets in the Plan for US management 17
employees in Bands D through F. Specifically, the Plan has been 18
structured to establish the following percentages for payouts under the 19
Plan: (i) Bands D through F – 50% based on attaining safety and 20
reliability, stewardship, customer responsiveness and cost of service 21
128
Testimony of the Human Resources Panel
Page 27 of 63
optimization objectives, 50% based on individual objectives, and (ii) 1
Bands B and C – 20% based on attaining safety and reliability, 2
stewardship, customer responsiveness and cost of service optimization 3
objectives, 40% based on individual objectives and 40% based on 4
financial objectives. 5
6
Bands D, E and F comprise the majority of National Grid’s management 7
employees as well as the group that has the greatest amount of contact 8
with customers. The variable pay plan is thus specifically designed to 9
focus this group on objectives that benefit customers. 10
11
Q. Please describe the measures that National Grid will evaluate to 12
determine whether it has met its safety and reliability, stewardship, 13
customer responsiveness and cost of service optimization goals. 14
A. To evaluate performance in the safety and reliability category, National 15
Grid will measure its performance against a number of safety and 16
reliability metrics applicable to the jurisdictions in which it operates, 17
including those approved by the Commission. With respect to 18
stewardship, National Grid will consider its performance under certain 19
surveys such as JD Power’s Corporate Citizenship measure. With regard 20
to customer responsiveness, National Grid will evaluate both customer 21
129
Testimony of the Human Resources Panel
Page 28 of 63
survey data and National Grid’s performance in comparison to certain 1
customer service metrics. Finally, in the cost of service optimization 2
category, National Grid will measure its performance against goals 3
concerning the containment of costs on a National Grid-wide basis. The 4
measures that National Grid will evaluate are intended to focus the 5
workforce on providing better, more efficient service to customers. 6
7
Q. How are individual objectives established under the Plan? 8
A. Individual objectives are established for management employees by 9
individuals in consultation with their supervisors. These objectives are 10
individually designed to ensure that employees are enhancing their 11
expertise and performing their assigned tasks at the highest possible 12
levels. Thus, for example, the individual objectives for a manager charged 13
with completing regulatory reports might include (i) completing all 14
required reports in a timely fashion, (ii) taking continuing education 15
classes to ensure that the manager is aware of recent changes in reporting 16
requirements and regulatory policies that may affect these reports, and (iii) 17
leading and developing his or her team. Objectives are established for 18
individual employees shortly after the start of the Plan year. 19
20
130
Testimony of the Human Resources Panel
Page 29 of 63
Q. Please explain why National Grid includes a variable pay component 1
as part of total cash compensation for its employees. 2
A. Variable cash compensation provides direct and specific incentives to 3
employees to achieve or exceed certain operating performance goals of 4
importance to National Grid, its customers and its regulators, including the 5
customer service, safety, and reliability metrics the Commission has 6
approved for Niagara Mohawk. Accordingly, the variable pay component 7
of National Grid’s overall employee compensation package aligns the 8
interests of National Grid and Niagara Mohawk with the interests of its 9
customers and regulators, and assists the Company in meeting its public 10
policy objectives. Moreover, as noted above, under National Grid’s total 11
compensation structure, base pay and benefits alone are not an adequate 12
level of compensation to allow National Grid to meet its goal of attracting 13
and retaining highly qualified employees to provide safe, reliable, and 14
efficient service to customers. Today’s marketplace dictates that variable 15
pay is a fundamental component of any private sector entity’s efforts to 16
attract qualified employees, as demonstrated by the fact that 85% of the 17
positions in the peer group have variable pay included in their 18
compensation packages. Top talent in the market demands compensation 19
that is directly linked to performance. For National Grid to compete in 20
this marketplace and be viewed as an employer of choice, variable pay 21
131
Testimony of the Human Resources Panel
Page 30 of 63
must be a part of the overall compensation package. If National Grid did 1
not have a variable pay component, it would be out of step with the market 2
and likely would not be able to attract the highly motivated employees 3
necessary for the Company to deliver outstanding customer service in a 4
reliable, efficient, and safe manner. 5
6
Q Is it correct that the variable pay plan at National Grid is pay-at-risk? 7
A. Yes, that is correct. National Grid’s variable pay plan is designed to be 8
part of a total compensation program; it is a pay-at-risk plan, not extra or 9
bonus pay. This conclusion is borne out by the analysis of total 10
compensation prepared by Towers Watson. The variable pay component 11
is labeled “pay-at-risk” because if performance measures are not achieved, 12
employees will not receive the variable pay. This “at-risk” compensation 13
allows National Grid to align pay with performance that is consistent with 14
the goals of customers and regulators and to allocate compensation to 15
those employees who are most deserving. Thus, variable compensation is 16
not “additional” or “optional” compensation that National Grid provides to 17
employees, but a required element in the total compensation program and 18
a necessary and prudent cost of doing business. 19
20
132
Testimony of the Human Resources Panel
Page 31 of 63
Q. Do the goals of National Grid’s variable pay plan promote employee 1
conduct that is contrary to Commission policy or the interests of 2
National Grid’s customers? 3
A. No. The goals of the Plan have been crafted to ensure that they promote 4
customer satisfaction, safety and reliability. The goals of the Plan are 5
fully consistent with Commission policy and the interests of National 6
Grid’s customers. 7
8
Q. How has the Company determined the level of variable pay expense 9
included in its proposed revenue requirements? 10
A. Before addressing that question, the Panel wishes to acknowledge that the 11
Company is aware that, in previous rate cases, the Commission and 12
various parties have expressed concerns that if a level of variable 13
compensation is included in rates and then ultimately not paid, the end 14
result will be a windfall for shareholders. To address this concern, the 15
Company proposes that if the variable compensation amounts reflected in 16
rates are not paid to employees for any reason, then the Company will 17
defer any such unpaid amounts, plus appropriate carrying costs, so that 18
such unpaid amounts can be returned to customers. 19
20
133
Testimony of the Human Resources Panel
Page 32 of 63
Having said this, the Company is proposing to include approximately 1
$18.0 million of variable compensation expenses in its electric revenue 2
requirement in this proceeding for the Rate Year and $3.1 million in the 3
gas revenue requirement for a total of $21.1 million; approximately $21.7 4
million in the revenue requirement for the Data Year ending March 31, 5
2015, split $18.5 million for electric and $3.2 million for gas; and 6
approximately $22.2 million in the revenue requirement for the Data Year 7
ending March 31, 2016, split $19.0 million for electric and $3.2 million 8
for gas. The adjustments to the amounts included in the Data Years reflect 9
the application of an inflation factor, as discussed in the testimony of the 10
Revenue Requirements Panel. In determining the $21.1 million of 11
variable pay included in the Rate Year, the Company has assumed that the 12
Company will attain the target levels of performance and payout. 13
14
Q. What do you mean by “target levels?” 15
A. “Target levels” represent a level of performance that is judged to be 16
approximately 45% of stated maximums. Target performance is best 17
described as an above average level of performance that is consistent with 18
overall expectations. Achieving target performance requires employees to 19
perform at a high, but nonetheless expected level. High performers would 20
134
Testimony of the Human Resources Panel
Page 33 of 63
exceed “target levels” while average or below average performers would 1
fall below “target levels.” 2
3
Q. Are you aware of recent Commission decisions concerning variable 4
pay? 5
A. Yes. In a recent decision involving Orange and Rockland Utilities, Inc. in 6
Case 10-E-0362 (“O&R”), the Commission indicated that there were two 7
ways a utility could substantiate that variable pay expense should be 8
included in the revenue requirement. First, a utility could attempt to 9
justify the inclusion of variable pay expense by demonstrating that (i) total 10
compensation, including variable compensation for a class or classes of 11
employees, is reasonable by reference to a study that compares total 12
compensation to that provided by similarly situated companies, and (ii) 13
that the variable compensation plan supports the provision of safe and 14
adequate service and does not promote employee behavior that would be 15
contrary to customer interests or Commission policies. Second, to the 16
extent that a utility seeks funding in rates for a variable compensation 17
program that would award payments above what would be considered 18
reasonable total compensation for a particular class of employees, then the 19
utility must demonstrate that such a program will return quantifiable or 20
demonstrated benefits to customers in a financial sense or in terms of 21
135
Testimony of the Human Resources Panel
Page 34 of 63
reliability, environmental impact or customer service that justify the 1
variable pay expense. 2
3
Q. Does the Company believe that its filing in this case justifies the 4
inclusion of variable pay expense under either of the tests set forth in 5
O&R? 6
A. Yes. The Company believes that this Panel’s testimony and exhibits 7
would support findings by the Commission that (i) the Company’s total 8
compensation expense, including variable pay expense, is reasonable 9
compared to the similarly situated companies included in our study, (ii) 10
the Company’s variable compensation plan does not promote employee 11
behavior that would be contrary to customer interests or Commission 12
policies, and (iii) the Company’s variable pay program is designed to 13
encourage employees to attain objectives that support the provision of safe 14
and adequate service and are consistent with the interests of customers and 15
the Commission. The analyses of total compensation presented in this 16
testimony are consistent with the types of analyses that the Commission 17
determined would be necessary to justify inclusion of variable pay costs in 18
rates in O&R. 19
20
136
Testimony of the Human Resources Panel
Page 35 of 63
Q. You mentioned before that the Company is proposing to refund to 1
customers any variable pay amounts that are reflected in rates but 2
ultimately not paid to employees. Are you concerned that such a 3
“downward only” reconciliation could lead management to be less 4
than rigorous in evaluating performance and making variable pay 5
awards? 6
A. No. National Grid has spent many years attempting to obtain rate 7
recovery of variable pay expense. Assuming that it is successful in 8
obtaining recovery of such expense in this case, it would be illogical for 9
National Grid to place recovery of variable pay expense in future cases at 10
risk by failing to administer its Plan in a reasonable fashion. 11
12
Q. Did National Grid increase management wages in the Historic Test 13
Year? 14
A. Yes. National Grid increased management wages by 3.19%, on average, 15
effective July 1, 2011. 16
17
Q. Is National Grid projecting additional management wage increases in 18
the period covered by its rate filing in this proceeding? 19
A. Yes. National Grid is projecting the following increases: 20
21
137
Testimony of the Human Resources Panel
Page 36 of 63
Effective Date Percentage 1
July 1, 2012 3.37% 2
July 1, 2013 3% 3
July 1, 2014 3% 4
July 1, 2015 3% 5
The forecast of proposed increases in management wages is based on the 6
market studies that are currently available to the Company, including the 7
information set forth in Schedule 1 of Exhibit __ (HRP-4). These 8
increases are also in line with the average wage increases provided over 9
the last ten years, as set forth in Schedule 2 of Exhibit __ (HRP-4). 10
Nonetheless, the Company will continue to monitor market information 11
and may revise its projections if market conditions require such 12
adjustments. 13
14
Q. Please explain why the July 1, 2012 management increase is projected 15
to be 3.37%. 16
A. The 3.37% includes a 3.00% average increase in base pay provided to all 17
of National Grid’s management workforce. The remaining 0.37% 18
represents increases targeted to certain positions where National Grid’s 19
market studies show that increases in compensation are necessary to bring 20
cash compensation levels closer to the market median. These increases 21
138
Testimony of the Human Resources Panel
Page 37 of 63
are being provided to engineers and first line supervisors – two groups of 1
employees that are presently paid at a level of total compensation that is 2
sufficiently below market that they require an additional adjustment. 3
4
Q. Does National Grid follow the same compensation philosophy with 5
regard to its union employees as it does for its management 6
employees? 7
A. Yes. However, the compensation provided to the IBEW workers is the 8
result of collective bargaining. Pursuant to the collective bargaining 9
agreement, union workers were provided base wage increases of 2.5% on 10
April 1, 2011 and April 1, 2012, and will be provided a base wage 11
increase of 2.5% on April 1, 2013. 12
13
Q. Does compensation for union employees also include a variable pay 14
component? 15
A. Yes. Variable pay gives union employees a stake in the Company’s 16
performance and provides direct incentives for employees to strive to meet 17
or exceed metrics tied to safe, reliable, and efficient performance, which, 18
in turn, results in better service for customers. As with the management 19
program, the variable compensation component is part of the total 20
compensation package designed to link rewards and results. Because this 21
139
Testimony of the Human Resources Panel
Page 38 of 63
philosophy toward compensation is an important part of National Grid’s 1
effort to deliver value to customers, including variable pay as a component 2
of compensation for union employees has been one of National Grid’s 3
priorities in labor negotiations. Under the current collective bargaining 4
agreement with the IBEW, the union workers participate in a variable pay 5
plan with a target payment of 3.5% of total pay. The plan has similar 6
goals to the Plan for management workers. 7
8
Q. Has National Grid attempted to evaluate whether the cash 9
compensation and benefits provided to union employees are 10
reasonable? 11
A. Yes. National Grid recently reviewed analyses of the compensation and 12
benefits provided to its union workforce. Towers Watson assisted 13
National Grid in preparing the benefits portion of this study. Towers 14
Watson also provided data concerning the cash compensation paid to 15
certain positions that are held by National Grid’s union workers. The 16
results of the analyses are set forth on Exhibit __ (HRP-5) and they 17
demonstrate that both National Grid’s cash compensation and benefits are 18
within market competitive levels. 19
20
140
Testimony of the Human Resources Panel
Page 39 of 63
Q. Please explain how Towers Watson analyzed the competitiveness of 1
Niagara Mohawk’s union benefits package. 2
A. Towers Watson compared the total benefits package provided to Niagara 3
Mohawk’s union workers to the total benefits package provided by 21 4
peer companies with unionized workforces. The analysis was performed 5
in a manner similar to the analysis of management benefits and was 6
accomplished by analyzing the relative value of benefits provided by 7
National Grid to its union workforce to the relative value of the benefits 8
provided by the peer group to their equivalent workforces. In total, this 9
analysis showed that the value of the benefits provided by National Grid to 10
Niagara Mohawk’s unionized workforce was slightly below the median 11
level of the peer group. 12
13
Q. Did Towers Watson attempt to analyze the cash compensation 14
provided to union workers in the union peer group? 15
A. Towers Watson does not have information available that specifically 16
addresses cash compensation paid to unionized workforces of the peer 17
group used to compare union benefits. Moreover, the Bureau of Labor 18
Statistics (“BLS”) does not provide such information. However, the BLS 19
does provide general information on differences between union and 20
management wages, and Towers Watson did have information for certain 21
141
Testimony of the Human Resources Panel
Page 40 of 63
positions that are filled by union workers at Niagara Mohawk. That data 1
is included in Schedule 1 on Exhibit __ (HRP-5). 2
3
Q. Please describe the compensation data that was provided by Towers 4
Watson and used by National Grid to evaluate its union 5
compensation. 6
A. The data was obtained from a survey of 124 utility and energy companies 7
conducted by Towers Watson. The participants ranged in size from 8
companies having revenues of less than $1 billion annually (35 9
participants) to participants having revenues of more than $6 billion 10
annually (36 participants). The data was provided for positions that could 11
be compared to some of Niagara Mohawk’s most common union 12
positions. This cash compensation data was adjusted upward by 10% to 13
account for the wage premiums that are typically reflected in the collective 14
bargaining agreements of unionized workforces based on information 15
provided by the BLS concerning the difference between union and 16
management compensation in the utility industry. Niagara Mohawk’s 17
hourly wages for equivalent positions were generally lower than the 18
hourly wages supplied by Towers Watson. This comparison is set forth on 19
Schedule 1 of Exhibit __ (HRP-5). 20
142
Testimony of the Human Resources Panel
Page 41 of 63
Q. Does the analysis of cash compensation provided to union workers 1
consider the impact of variable pay? 2
A. Yes. The level of variable pay provided to the Company’s union 3
workforce at target increases the workers’ cash compensation by 3.5%. 4
Thus, on Schedule 1 of Exhibit __ (HRP-5), we have adjusted Niagara 5
Mohawk’s union wages upward by 3.5% to compare them to the cash 6
compensation, including variable pay, provided to the comparison group. 7
This comparison shows that the total cash compensation, including 8
variable pay, provided to the Company’s union workforce is less than that 9
provided to the comparison group. 10
11
Q. What are the performance objectives of the union variable pay plan? 12
A. The performance objectives are tied to the attainment of customer 13
satisfaction, safety and reliability metrics. These goals are consistent with 14
the Commission’s policies and customer interests. The union variable pay 15
plan is designed to encourage the Company’s union workers to assist the 16
Company in providing safe and reliable utility service. 17
18
Q. What efforts has National Grid undertaken to control costs associated 19
with its health and welfare programs? 20
143
Testimony of the Human Resources Panel
Page 42 of 63
A. National Grid self-insures its health and welfare benefit plans, which 1
affords it a greater ability to control costs than it would have under third-2
party insurance programs. Because these plans are self-insured, the costs 3
for the programs are directly linked to the utilization of benefits. National 4
Grid’s medical plans also provide extensive health and wellness programs 5
designed to reduce health risks and the occurrence of costly diseases. 6
These programs, combined with coverage for preventive check-ups and 7
screenings, provide a benefit structure that, over time, should help to 8
mitigate costs and improve employee wellness. In addition, National Grid 9
conducts a competitive bidding process and aggressively negotiates with 10
vendors to achieve the lowest administrative service fees, premiums and 11
maximum discounts when rolling out a new program or upon the 12
expiration of an existing contract. 13
14
Q. What efforts have been made to control the cost of union health and 15
welfare plans? 16
A. National Grid self-insures the union health and welfare plans and has 17
successfully encouraged union employees to opt for managed care plans 18
by offering them at a lower cost than other plan designs. As of January 1, 19
2012, the prescription drug program was carved out of each medical plan 20
and replaced in its entirety with a CVS Caremark plan. CVS Caremark is 21
144
Testimony of the Human Resources Panel
Page 43 of 63
National Grid’s Pharmacy Benefits Manager for its entire US business and 1
this approach made it possible for the Company to generate savings by 2
leveraging a volume discount. This change is expected to result in annual 3
savings of $1,688,000. These cost reductions are captured in US 4
Restructuring Program savings and are reflected in the Company’s 5
revenue requirements. 6
7
Q. Please describe any changes that have been made to the management 8
health and welfare plans since Niagara Mohawk’s last rate filing. 9
A. In an effort to reduce costs, National Grid made a number of changes in 10
benefit plan design that lowered the costs of benefits but still maintained 11
market competitiveness: 12
• The office visit co-pay for a specialist in the Exclusive Provider 13 Organization (“EPO”), plan increased from $15 to $20 as of 14 January 1, 2012 15
• The co-pays for preferred brand drugs in all medical plans 16 increased from $20 retail/$40 mail order to $25 retail/$50 mail 17 order and co-pays for non-preferred brand drugs in all medical 18 plans increased from $35 retail/$70 mail order to $40 retail/$80 19 mail order as of January 1, 2012 20
21 The savings associated with these initiatives, which total approximately 22
$320,000, are captured in US Restructuring Program savings and are 23
reflected in the Company’s revenue requirements. In addition to these 24
145
Testimony of the Human Resources Panel
Page 44 of 63
initiatives, the Company also eliminated the $750 waiver credit for opting 1
out of medical coverage as of January 1, 2011. 2
3
Q. Please describe any adjustments to the Historic Test Year expense for 4
employee medical and dental benefit plans that the Company is 5
including in its proposed revenue requirements. 6
A. National Grid is projecting annual increases of 9% in the costs associated 7
with medical benefits and annual increases of 7% in the costs associated 8
with dental benefits over the three years ending March 31, 2016. These 9
projected increases are consistent with National Grid’s actual experience 10
and are also consistent with national projections for health care trends and 11
the projections gathered by Towers Watson. Despite the fact that health 12
care costs have increased consistently above the general rate of inflation 13
for many years, the Company applied a general inflation rate to the 14
Historic Test Year level of expense to determine the level of medical and 15
dental expenses included in the Rate Year revenue requirements consistent 16
with Commission precedent. Although the Company chose to follow 17
Commission precedent, the use of a general inflation factor to project 18
health insurance increases likely will deprive the Company of the ability 19
to fully recover anticipated health care costs in the Rate Year unless 20
146
Testimony of the Human Resources Panel
Page 45 of 63
savings in other areas are achieved to offset the expected increase in health 1
care costs. 2
3
Q. Please describe any adjustments to the Historic Test Year expense for 4
other employee benefit plans that the Company is including in its 5
proposed revenue requirements. 6
A. The forecast Rate Year revenue requirements for other employee benefit 7
plan expenses (life insurance, the 401(k) plan, and other active benefits) 8
were also developed by applying the general inflation rate to the Historic 9
Test Year level of expense, consistent with Commission precedent. 10
11
Q. Please describe National Grid’s efforts to manage OPEB benefits. 12
A. The process of ensuring fair, competitive, and efficient benefit programs 13
for employees and retirees is one of the core activities of National Grid’s 14
U.S. Compensation, Benefits and Pensions department. Compensation, 15
Benefits and Pension staff continually endeavor to ensure proper vendor 16
performance and compliance with federal and state laws and regulations. 17
Trends in compensation, benefit and pension plan design are continually 18
monitored and compared to National Grid’s plans to ensure that they 19
continue to be fair, reasonable and competitive. 20
147
Testimony of the Human Resources Panel
Page 46 of 63
On an annual basis, National Grid analyzes the funding, recording and 1
administration of OPEBs. Less frequently, but on a consistent basis, 2
National Grid considers more significant changes designed to reduce the 3
overall cost of the OPEB plan. 4
5
Q. What challenges does National Grid face in considering fundamental 6
changes to retirement health and life insurance benefits on a frequent 7
basis? 8
A. Retiree programs are unique among the collection of employee benefits. 9
Unlike health care programs for which employees derive current value, 10
retiree programs represent benefits to be provided in the future. As such, 11
their value tends to accrue over a longer period of time. Because of these 12
long accrual periods, significant changes in retiree programs are difficult 13
to adjust to when they occur close to or during retirement. Preparation for 14
retirement involves assessing one’s financial preparedness provided 15
through benefit plans, Social Security, and individual savings. Given the 16
fixed benefits payable under the Company’s pension plan, and the 17
potential for significant health care expense as participants age, retiree 18
health insurance benefits are one of the key factors in reaching the 19
conclusion that one can retire. Therefore, and as further outlined below, 20
the Company has reached the conclusion that changes to OPEB benefit 21
148
Testimony of the Human Resources Panel
Page 47 of 63
levels are only feasible in connection with major benefit alignments either 1
following corporate transactions, in connection with labor negotiations, or 2
when major legislative changes are made. Any OPEB benefit change will 3
usually be done in connection with other benefit alignments and will 4
generally be carefully constructed to affect only those employees who 5
have sufficient time to adapt to the changes before reaching retirement 6
age. 7
8
Another reason retiree programs are unique is the wide geographic 9
dispersion of the participants. Unlike active employees, who live 10
geographically proximate to the Company’s business operations, retirees 11
move to other parts of the United States and other countries. This makes 12
communication with them and implementation of changes to their benefits 13
administratively burdensome and costly. 14
15
Q. Are there particular challenges involved in modifying OPEB benefits 16
for union employees? 17
A. With respect to OPEBs for union employees, the Company is bound by 18
law to negotiate with IBEW Local 97 for these benefits and, having 19
reached agreement on them, to hold those benefit levels until the current 20
149
Testimony of the Human Resources Panel
Page 48 of 63
collective bargaining agreement expires, unless they are renegotiated 1
earlier by mutual consent. 2
3
Q. Is there a relationship between National Grid’s ability to make 4
changes to the OPEB benefits provided to management employees 5
and the benefits provided to union employees? 6
A. Management employee benefits can be changed at any time. However, 7
the existence and substantial size of the union workforce and the need to 8
recruit future managers from the union ranks creates a significant 9
connection here. It would be shortsighted to design or change benefits 10
without fully evaluating the impact on this connection. In the case of 11
OPEB benefits in particular, a union employee would be unlikely to 12
accept, let alone seek, a management job that provides either significantly 13
fewer or less valuable benefits than he or she is eligible for under the 14
union contract. Many of the best union to management recruits are rank-15
and-file employees who have worked many years in a physical field work 16
position and seek to move into supervision. These employees are highly 17
valued by the management team, as they can ably and immediately 18
contribute to meeting the Company’s objective of providing safe and 19
reliable service at a reasonable cost. Forcing union employees to accept 20
benefit reductions to move to management would be a significant 21
150
Testimony of the Human Resources Panel
Page 49 of 63
impediment to any such moves. National Grid’s desire to facilitate the 1
promotion of union employees manifests itself in a three to five year cycle 2
of OPEB benefit level reviews for both union and management 3
employees, absent a major triggering event such as a merger. This cycle 4
generally corresponds to the terms of the collective bargaining 5
agreements. 6
7
Q. Notwithstanding the fact that major changes to the OPEB plans are 8
typically made on a three to five year cycle, please explain the OPEB 9
analyses performed on an annual basis. 10
A. The annual process to examine OPEBs focuses on the following three 11
categories: (i) actuarial assumptions around plan expense and funding, (ii) 12
general vendor performance reviews, and (iii) Medicare prescription drug 13
program refund administration. 14
15
Actuarial assumptions for expense and funding: Each year, working with 16
its actuary, AonHewitt, National Grid evaluates the proper level of several 17
actuarial factors used to determine plan expense and funding, including 18
discount rate, medical trend rate, and mortality rate. Depending on 19
economic information and trends at the time, rates are either continued or 20
151
Testimony of the Human Resources Panel
Page 50 of 63
modified as appropriate. In addition, National Grid evaluates various 1
options to ensure optimal funding of these benefits. 2
3
General vendor performance reviews: In 2010, all active and retiree 4
benefit plan administration was consolidated with a single vendor. In 5
addition, each year, National Grid’s benefits staff meets with the third-6
party vendors who are responsible for claims payments to review their 7
performance. National Grid’s arrangements with these vendors are for 8
administrative services only, so the focus is on transaction performance 9
and participant satisfaction. National Grid continuously reviews the 10
delivery and administration of the benefits under the retiree medical plan 11
with the ultimate objective to reduce administration costs and improve the 12
delivery of services. 13
14
Medicare prescription drug refund administration: Each year, National 15
Grid supplies the federal government with extensive documentation and 16
certification to obtain a sizable subsidy in return for providing retiree drug 17
benefits to retirees who are 65 years of age or older (“Post 65 retirees”). 18
This is known as the Retiree Drug Subsidy program (“RDS”). National 19
Grid vigorously pursues maximum refunds, thereby lowering the 20
Company’s OPEB expenses. 21
152
Testimony of the Human Resources Panel
Page 51 of 63
Q. Is the RDS being affected by the Health Care Reform legislation? 1
A. Yes. The Patient Protection and Affordable Care Act (“PPACA”) enacted 2
in March 2010 changes the tax savings associated with the RDS Program. 3
Because the favorable tax treatment for the RDS will be eliminated as of 4
January 1, 2013, National Grid has reevaluated its retiree health care 5
strategy and developed alternative means to deliver Post 65 retiree 6
prescription drug benefits that will be financially advantageous to the 7
Company. The alternative plan that National Grid is implementing as of 8
January 1, 2013 is known as an Employer Group Waiver Plan. 9
10
Q. What is an Employer Group Waiver Plan? 11
A. An Employer Group Waiver Plan (“EGWP”) is a financially advantageous 12
alternative to delivering Post 65 retiree prescription drug coverage. It will 13
replace National Grid’s employer sponsored prescription plan with a 14
government sponsored plan that is contracted directly through a Pharmacy 15
Benefits Manager (“PBM”) such as CVS Caremark. The PBM handles all 16
administration, federal interactions, and collection of subsidies and 17
assumes all compliance responsibilities. 18
19
Q. Why is this program financially advantageous to National Grid? 20
153
Testimony of the Human Resources Panel
Page 52 of 63
A. An EGWP provides access to direct subsidy payments from the federal 1
government that will grow over time. In addition, further savings can be 2
realized from the impact of coordinating pharmaceutical manufacturer 3
discounts on brand drugs under PPACA, as well as federal catastrophic 4
reinsurance payments. 5
6 Q. What savings does National Grid expect to realize as a result of the 7
move to an EGWP strategy? 8
A. National Grid projects that the movement to EGWP will result in a one-9
time reduction in National Grid’s plan obligations of approximately $375 10
million and ongoing annual savings of approximately $62 million on a 11
FAS 106 basis. 12
13
Q. Has National Grid taken advantage of any other subsidies offered by 14
the federal government? 15
A. Yes. National Grid participates in the Early Retiree Reinsurance Program 16
that was established through PPACA. 17
18
Q. Please describe the Early Retiree Reinsurance Program. 19
A. Under PPACA, the federal government set up a temporary $5 billion 20
retiree reinsurance program for employers providing health insurance 21
154
Testimony of the Human Resources Panel
Page 53 of 63
coverage to early retirees (ages 55 to 64) and dependents. The program 1
provides reimbursement to participating employment-based plans for a 2
portion of the cost of providing health insurance coverage to early retirees 3
(and their eligible spouses, surviving spouses and dependents). Employer 4
plans can receive reimbursement for 80% of the costs attributable to an 5
early retiree’s (or spouse/dependents) aggregate health claims that fall 6
between $15,000 and $90,000 per plan year until the funds run out or 7
January 1, 2014. The reinsurance proceeds may be used to reduce the 8
premium costs of the employer or the retiree premium contributions. 9
10
Q. How much has been received from this program thus far? 11
A. As of March 2012, National Grid has received a total of approximately 12
$4.6 million from this program. 13
14
Q. Is the OPEB plan the same for all employees? 15
A. No. The Company has two OPEB plans – the OPEB plan applicable to 16
union employees and the OPEB plan applicable to management 17
employees. In terms of the overall cost of these plans, the cost of the 18
union plan is greater because the union workforce is larger. 19
20
155
Testimony of the Human Resources Panel
Page 54 of 63
In terms of the OPEB benefits offered to each workforce, the broad 1
categories of benefits are the same. Both union and management 2
employees receive retiree medical benefits and may receive life insurance 3
benefits depending on their hire date. 4
5
As discussed earlier in this testimony, there is a significant relationship 6
between the union OPEB plan and the management OPEB plan. 7
8
Q. What has National Grid done to control the cost of management 9
retirement benefits since Niagara Mohawk’s last rate filing? 10
A. In late 2009, as part of the ongoing consolidation of National Grid with 11
KeySpan Corporation, National Grid conducted an evaluation of the 12
retirement benefits that are offered to all management employees, 13
including Niagara Mohawk’s. This review encompassed all retiree 14
benefits, including pension plans, post-retirement medical benefits, post-15
retirement life insurance benefits and 401(k) plans. The primary objective 16
of the review was to align the retirement benefits offered to the 17
management employees and maintain the overall competitive value of the 18
benefits while managing the costs. The alignment of the programs would 19
allow National Grid to gain efficiencies by simplifying benefit 20
156
Testimony of the Human Resources Panel
Page 55 of 63
administration and communication. This review was completed in late 1
2010. 2
3
Q. What changes have been made to management post-employment 4
retiree medical benefits as a result of the review? 5
A. National Grid was successful in more closely aligning legacy National 6
Grid and legacy KeySpan future retiree contributions for medical coverage 7
for management employees hired before January 1, 2011 while preserving 8
the value of the benefits, sustaining competitiveness with the market and 9
managing costs. National Grid will continue to share the cost of coverage 10
for employees retiring before age 65, and in most cases will also share in 11
the cost of Post 65 retiree coverage. Generally, contribution amounts are 12
based on years of service at retirement. The estimated ongoing annual 13
savings from these changes on a FAS 106 basis for Niagara Mohawk is 14
$1,526,000. 15
16
Q. What changes have been made to management post-employment 17
retiree medical benefits for employees hired on or after January 1, 18
2011? 19
A. Management employees hired on or after January 1, 2011 will also be 20
eligible for retiree medical coverage if they are at least 60 years of age 21
157
Testimony of the Human Resources Panel
Page 56 of 63
with at least 10 years of service. For Pre 65 medical coverage, employees 1
will receive a fixed company subsidy equal to 50% of the cost of the plan 2
set at retirement. The subsidy paid by National Grid remains fixed to age 3
65 and the retiree is responsible for all future premium increases. Once 4
the retiree reaches age 65 or if they retire at age 65 or later, they can 5
continue to participate in the National Grid plans; however, they are 6
required to pay for the full cost of the coverage. There is no subsidy for 7
Post 65 retiree coverage. Because this change involves newly hired 8
employees, there are no immediate savings associated with the change, but 9
it will enable the Company to avoid costs over time. 10
11
Q. What changes have been made to management post-employment 12
retiree life insurance benefits as a result of the review? 13
A. The post-employment life insurance benefit for future management 14
retirees from legacy National Grid is typically $20,000. Certain legacy 15
Niagara Mohawk management employees have a pre-existing benefit that 16
provides for one-half of final base pay at retirement. Employees at legacy 17
KeySpan had a more favorable post-employment life insurance benefit. 18
As a result of the review, with the exception of the employees noted 19
above, the post-employment life insurance benefit will be aligned for all 20
management retirements on and after May 1, 2012. The retiree life 21
158
Testimony of the Human Resources Panel
Page 57 of 63
insurance benefit for both Pre 65 and Post 65 coverage will be $20,000. In 1
addition, employees hired on or after January 1, 2011 are not eligible for 2
retiree life insurance benefits. 3
4
Q. In the Commission’s decision in the 2010 Electric Rate Case, the 5
Company was required to demonstrate that the $1,022,000 increase in 6
expense for Niagara Mohawk resulting from the change in the 7
Company match in the 401(k) plan for management employees that 8
took effect on January 1, 2011 would be offset by changes in other 9
post-employment benefits. Do the cost savings stated above offset this 10
cost? 11
A. Yes. The $1,526,000 of savings resulting from the changes in the retiree 12
medical contributions for future retirees offset the additional expense that 13
resulted from increasing the Company match in the management 401(k) 14
plan from 50% of the first 6% of employee contributions to 50% of the 15
first 8% of employee contributions effective January 1, 2011. These 16
savings are reflected in the Company’s forecast of OPEB expenses for the 17
Rate Year. 18
19
Q. What has National Grid done to manage union post-employment 20
benefit costs since the last rate filing? 21
159
Testimony of the Human Resources Panel
Page 58 of 63
A. As of January 1, 2011, National Grid implemented a new design to 1
provide its union retirees with prescription drug benefits. The benefits 2
were carved out of the medical plans and are now provided through CVS 3
Caremark. The carve out is expected to reduce administrative expenses 4
through economies of scale and deeper discounts. The estimated ongoing 5
annual savings from this change on a FAS 106 basis for Niagara Mohawk 6
are $10,122,000. These savings are reflected in the Company’s forecast of 7
OPEB expenses for the Rate Year. 8
9
Q. What has National Grid done to control pension costs since the last 10
rate filing? 11
A. Consistent with our practice for OPEBs, National Grid continually reviews 12
the pension plan benefits it offers to employees to control plan costs and 13
ensure that the benefit offerings are in line with market practices. 14
National Grid evaluates the proper level of several actuarial assumptions 15
used to determine pension plan expense and funding. An asset/liability 16
modeling study of the plan was completed and, given that the Company’s 17
pension plan assets currently exceed its expected liabilities, certain 18
changes were implemented in the investment strategy for the Niagara 19
Mohawk pension plan to reduce the potential for a drop in funded status 20
below forecast future liabilities. The investment strategy, which was 21
160
Testimony of the Human Resources Panel
Page 59 of 63
designed to preserve the favorable funding status of the Company’s 1
pension plan, will gradually reduce the percentage of investment in return 2
seeking assets such as equities, and correspondingly increase the 3
percentage of investment in bonds in an attempt to match the future 4
duration of the pension plan liabilities, as the funded status of the plan 5
increases. Specifically, the Niagara Mohawk pension plan assets have 6
already been modified to reduce the return seeking assets such as equities 7
from 60% to 50%. Based on the forecast funded status of the Niagara 8
Mohawk pension plan, it is anticipated that the investment in return 9
seeking assets will be reduced to 45% by the beginning of the Rate Year, 10
and further reduced to 40% by the second Data Year. This strategy has 11
been implemented because the Company’s pension plan assets currently 12
exceed its liabilities and it wishes to reduce the possibility that 13
investments in more volatile return seeking assets will drop in value and 14
cause the plan’s liabilities to exceed its assets in the future. While this 15
change in investment strategy results in an increase in pension expense of 16
approximately $7.3 million in the Rate Year, it should benefit customers 17
in the long run by decreasing the likelihood that the value of the plan 18
assets will fall below the value of its expected liabilities, leading to more 19
substantial increases in pension costs in the future. 20
21
161
Testimony of the Human Resources Panel
Page 60 of 63
Q. Has Niagara Mohawk made other changes to its pension plans that 1
affect the cost of those plans? 2
A. Yes. IBEW Local 97 employees who were hired on or after July 1, 1998 3
continue to participate in the cash balance pension plan, which is market 4
competitive and significantly less costly than the traditional final average 5
pay defined benefit plan. Management employees who were hired 6
between July 1, 1998 and December 31, 2010 also continue to participate 7
in the cash balance pension plan. However, as a result of the retirement 8
benefit review previously discussed in this testimony, the two existing 9
cash balance plan formulae for management participants have been 10
aligned. Effective January 1, 2011, all cash balance benefits earned are 11
calculated under one formula. The contribution from National Grid ranges 12
from 4% to 8% of total cash compensation; however, the amount 13
contributed will now be based on age and years of service. These changes 14
result in a slight increase in cost of approximately $312,000 per year on a 15
FAS 87 basis for Niagara Mohawk, which is more than offset by the 16
savings resulting from the increased retiree medical contributions. 17
Another change that was implemented as a result of the retirement benefit 18
review was to the pension plan benefits offered to newly-hired 19
management employees. The trend in the marketplace is moving from 20
defined benefit pension plans to defined contribution or 401(k) only plans 21
162
Testimony of the Human Resources Panel
Page 61 of 63
in which the investment risk is shifted from National Grid to the 1
employee. This trend is visible in most industries, with over 69% of the 2
Fortune 100 companies offering a defined contribution/401(k) plan only 3
and no defined benefit plan. As of January 1, 2011, all newly hired 4
management employees participate in a defined contribution/401(k) plan 5
only; they will not be participating in a defined benefit pension plan, 6
including cash balance plans. National Grid will make a core contribution 7
to the employee’s 401(k) plan based on the same formula used for the 8
newly aligned cash balance pension plan discussed above. National Grid 9
will contribute a percentage of eligible pay ranging from 4% to 8% based 10
on the employee’s combined age and years of service into the 401(k) plan. 11
The employees can manage their investments and are afforded both 12
flexibility and portability. 13
14
Q. What other steps has National Grid taken with respect to the 15
management of its retirement plans since Niagara Mohawk’s last rate 16
filing? 17
A. National Grid encourages greater participation and investment 18
management in its 401(k) plans so that employees will take greater 19
ownership and responsibility for funding their own retirement by saving 20
more and investing wisely. In addition, in an effort to gain economies of 21
163
Testimony of the Human Resources Panel
Page 62 of 63
scale and streamline administration, effective July 2, 2010, all 401(k) plan 1
administration was moved to a single vendor, Vanguard, and effective 2
December 1, 2011 all pension administration was moved to a single 3
outsourced vendor, Towers Watson. 4
5
Q. Please describe the compensation costs associated with expatriate 6
employees that are included in the Company’s proposed revenue 7
requirements. 8
A. As discussed in the Service Company Panel’s testimony, the Company has 9
included in the revenue requirements the lesser of (i) each expatriate 10
employee’s actual cash compensation, as adjusted for the cost of benefits, 11
or (ii) compensation equal to a market-determined level for a US-based 12
employee in the expatriate’s position, as adjusted for the cost of benefits 13
incurred by National Grid’s service company. 14
15
Q. How was the market level compensation determined for each position 16
held by an expatriate? 17
A. National Grid analyzed each position held by expatriates during the 18
Historic Test Year and as forecast for the Rate Year and identified the 19
market-based level of cash compensation for the position. This 20
information is set forth on Exhibit __ (HRP-6). 21
164
Testimony of the Human Resources Panel
Page 63 of 63
Q. Does this conclude your direct testimony? 1
A. Yes, it does. 2
165
Exhibits of
HR
Panel
Testimony of The Human Resources Panel
Index of Exhibits
Exhibit __ (HRP-1) Non-Enduring Roles as of December 31, 2011 Exhibit __ (HRP-2) Vacant Positions as of December 31, 2011 Exhibit __ (HRP-3) Comprehensive Evaluation of National Grid’s USA’s
Compensation and Benefits Package Exhibit __ (HRP-4) Market Merit Increases and 10 Year Wage Increase History Exhibit __ (HRP-5) Niagara Mohawk’s Compensation and Benefits for Union
Employees Exhibit __ (HRP-6) Expatriate Market Reference Points
166
E
xhibit __ (HR
P-1)
Testimony of The Human Resources Panel
Exhibit __ (HRP-1)
Non-Enduring Roles as of December 31, 2011
167
National Grid USA Exhibit __ (HRP-1)Page 1 of 3
Number Employee ID Band Line of Business
Short Term Assignement
End Date Company1 41 E Shared Services - US 10/01/2012 CSV2 104 E Gas Distribution - US 12/31/2011 BUG3 257 F Human Resources 03/31/2012 CSV4 819 D Human Resources 07/31/2012 CSV5 1352 E Gas Distribution - US 12/31/2011 BUG6 1644 E Core Business 07/31/2012 CSV7 2631 E Shared Services - US 07/31/2012 BUL8 2640 D Gas Distribution - US 12/31/2011 CSV9 3060 D Electricity Distribution - US 12/31/2012 CSV
10 3237 F Human Resources 07/31/2012 CSV11 3546 D Shared Services - US 07/31/2012 CSV12 3781 C IS 12/31/2012 CSV13 5116 C Finance 12/31/2012 CSV14 6492 D Treasury & Tax 12/31/2012 CSV15 7265 D Treasury & Tax 12/31/2012 CSV16 9989 D Electricity Distribution - US 12/31/2012 CSV17 10712 E Core Business 07/31/2012 CSV18 13329 C Gas Distribution - US 04/30/2012 CSV19 14006 D Treasury & Tax 12/31/2012 CSV20 14271 E Core Business 12/31/2012 CSV21 14579 E Core Business 07/31/2012 CSV22 15411 E Core Business 07/31/2012 CSV23 15918 D Treasury & Tax 07/31/2012 CSV24 16245 F Treasury & Tax 12/31/2012 CSV25 16931 E Treasury & Tax 07/31/2012 CSV26 17247 F Human Resources 07/31/2012 CSV27 17410 D Human Resources 07/31/2012 CSV28 17956 F Long Island Power Authority 12/31/2012 CSV29 18205 C Finance 11/01/2012 CSV30 18645 E Treasury & Tax 12/31/2012 CSV31 19668 C Human Resources 12/31/2012 CSV32 21866 E Long Island Power Authority 12/31/2012 CSV33 22042 D Gas Distribution - US 12/31/2012 CSV34 22690 E Regulatory Pricing 09/30/2012 CSV35 24569 D Gas Distribution - US 12/31/2012 CSV36 32892 D Regulatory Pricing 09/30/2012 CSV37 44620 D Safety, Health, Environ 07/31/2012 CSV38 59276 C Customer 03/31/2012 CSV39 61941 D Human Resources 07/31/2012 CSV40 61976 D Shared Services - US 03/31/2012 CSV41 70145 E Long Island Power Authority 12/31/2012 CSV42 75509 D Human Resources 07/31/2012 CSV43 78145 D Gas Distribution - US 12/31/2012 CSV44 100000512 C Ops, M&C, NS 11/01/2012 09945 100000632 E Core Business 07/31/2012 09946 100002122 D Electricity Distribution - US 03/31/2012 09947 100002521 E Shared Services - US 07/31/2012 00548 100003774 D Electricity Distribution - US 12/31/2012 09949 100004062 E Corporate Center - US 07/31/2012 099
Non-Enduring Roles as of Dec 31, 2011
168
National Grid USA Exhibit __ (HRP-1)Page 2 of 3
Number Employee ID Band Line of Business
Short Term Assignement
End Date Company50 100004121 E Electricity Distribution - US 03/31/2012 09951 100004669 D Electricity Distribution - US 12/31/2012 09952 100004799 D Treasury & Tax 12/31/2012 09953 100005224 E Treasury & Tax 07/31/2012 09954 100006267 F Electricity Distribution - US 06/30/2012 09955 100006580 C Treasury & Tax 12/31/2012 09956 100006945 C Shared Services - US 12/31/2012 09957 100007051 E Core Business 12/31/2012 04958 100007206 E Core Business 07/31/2012 09959 100010291 C Electricity Distribution - US 11/01/2012 09960 100010308 D Core Business 12/31/2012 09961 100010435 E Corporate Center - US 10/01/2012 09962 100011721 D Human Resources 03/31/2012 09963 100015818 E Electricity Distribution - US 03/31/2012 00564 100015917 E Electricity Distribution - US 03/31/2012 00565 100016087 E Electricity Distribution - US 03/31/2012 00566 100017291 E Treasury & Tax 12/31/2012 09967 100018592 E Core Business 07/31/2012 09968 100019201 C Safety, Health, Environ 12/31/2012 09969 100019202 D Electricity Distribution - US 03/31/2012 09970 100019217 D Electricity Distribution - US 12/31/2012 09971 100019233 C IS 12/31/2012 09972 100019337 C Shared Services - US 12/31/2012 09973 100019469 E Core Business 07/31/2012 099
74 100019502 E Treasury & Tax 12/31/2012 099
75 100019564 D Electricity Distribution - US 12/31/2012 099
76 100019703 E Electricity Distribution - US 03/31/2012 036
77 100020026 E Gas Distribution - US 10/31/2012 099
78 100020364 E Core Business 07/31/2012 036
79 100020716 E Electricity Distribution - US 12/31/2012 099
80 100020762 F Treasury & Tax 12/31/2012 03681 100020868 D Electricity Distribution - US 06/30/2012 03682 100021029 D Electricity Distribution - US 10/31/2012 09983 100021137 E Electricity Distribution - US 03/31/2012 03684 100021195 E Safety, Health, Environ 07/31/2012 03685 100021248 D Corporate Center - US 12/31/2012 09986 100021322 E Core Business 07/31/2012 09987 100021699 D Human Resources 07/31/2012 09988 100021887 E Shared Services - US 07/31/2012 09989 100022155 E Core Business 07/31/2012 09990 100022742 E Shared Services - US 07/31/2012 09991 100023412 E Shared Services - US 07/31/2012 09992 100023490 E Electricity Distribution - US 12/31/2012 09993 100024518 E Core Business 07/31/2012 03694 100025055 E Treasury & Tax 12/31/2012 03695 100025082 E Shared Services - US 07/31/2012 09996 100025182 E Treasury & Tax 07/31/2012 09997 100025256 E Shared Services - US 07/31/2012 099
Non-Enduring Roles as of Dec 31, 2011
169
National Grid USA Exhibit __ (HRP-1)Page 3 of 3
Number Employee ID Band Line of Business
Short Term Assignement
End Date Company98 100025279 E Treasury & Tax 12/31/2012 03699 100026404 E Electricity Distribution - US 04/30/2012 036
100 100027249 E Shared Services - US 07/31/2012 099101 100027503 D Human Resources 03/31/2012 099102 100027727 E Treasury & Tax 12/31/2012 036103 100028246 D Electricity Distribution - US 12/31/2012 099104 100028318 E Electricity Distribution - US 03/31/2012 036105 100028337 E Electricity Distribution - US 03/31/2012 099106 100028555 D Core Business 03/31/2012 036107 100028859 F Safety, Health, Environ 07/31/2012 036108 100028920 E Core Business 05/31/2012 099109 100029237 E Shared Services - US 02/29/2012 099110 100029282 E Electricity Distribution - US 12/31/2012 099111 100029491 D Core Business 07/31/2012 036112 100030082 E Electricity Distribution - US 12/31/2012 099113 100031697 D Shared Services - US 10/31/2012 099114 100032319 E Electricity Distribution - US 12/31/2012 036115 100033210 E Core Business 07/31/2012 036116 100033583 D Safety, Health, Environ 07/31/2012 036117 100033604 E Safety, Health, Environ 12/31/2012 099118 100033708 D Electricity Distribution - US 10/31/2012 099119 100034012 D Electricity Distribution - US 03/31/2012 099120 100034239 E Shared Services - US 07/31/2012 099121 100034361 E Core Business 07/31/2012 099122 100036748 E Shared Services - US 12/31/2012 099123 100046174 E Regulatory Pricing 04/06/2012 099124 100046634 F Corporate Center - US 07/31/2012 099125 100048264 E Core Business 07/31/2012 099126 100048317 E Electricity Distribution - US 12/31/2012 099127 100048372 F Core Business 07/31/2012 048128 100048397 E Electricity Distribution - US 01/31/2012 099129 100048748 E IS 02/29/2012 099130 100049662 E Shared Services - US 07/31/2012 099131 100052602 E Core Business 12/31/2012 099132 100053196 E Core Business 07/31/2012 099133 100053831 E Shared Services - US 07/31/2012 099134 100053939 E Electricity Distribution - US 12/31/2012 099135 100711276 D Core Business 07/31/2012 099136 100713117 E Shared Services - US 07/31/2012 099137 100713401 D IS 07/31/2012 099
Non-Enduring Roles as of Dec 31, 2011
170
Exhibit __ (H
RP
-2)
Testimony of The Human Resources Panel
Exhibit __ (HRP-2)
Vacant Positions as of December 31, 2011
171
Nat
iona
l Gri
d U
SAE
xhib
it _
_ (H
RP
-2)
Pag
e 1
of 3
Num
ber
Posi
tion
Cod
eTi
tleSa
lary
Ban
dFu
nctio
nO
pen
at 3
/26/
2012
1A
-2A
-3A
-4I
Spe
cial
ist,
Inte
rnal
Aud
itE
Aud
it2
A-2
A-3
A-4
JS
peci
alis
t, In
tern
al A
udit
EA
udit
3A
-2A
-3A
-4N
Ass
ocia
te S
peci
alis
t, In
tern
al A
udit
EA
udit
Ope
n4
A-2
A-3
C-4
B-5
DS
r. S
peci
alis
t, S
HE
Aud
itE
Aud
itO
pen
5C
-3A
-4A
-5B
-6B
Bus
ines
s P
artn
er, C
usto
mer
& P
rodu
ct E
xper
ienc
e, N
ew P
rodu
cts
& S
ervi
ces
EC
usto
mer
Ope
n6
C-3
A-4
A-5
C-6
A-7
AV
endo
r S
peci
alis
t, C
usto
mer
Com
mun
icat
ions
, Com
mer
cial
EC
usto
mer
7C
-3A
-4A
-5C
-6D
Man
ager
, Cus
tom
er C
omm
unic
atio
ns, I
nter
net E
xper
ienc
eD
Cus
tom
erO
pen
8C
-3A
-4A
-5C
-6E
-7B
Sr.
Spe
cial
ist-
Gra
phic
Des
igne
r- C
omm
unic
atio
ns D
evel
opm
ent &
Pro
duct
ion
EC
usto
mer
9C
-3A
-4A
-5E
-6C
Pro
gram
Man
ager
, Cus
tom
er In
sigh
tsD
Cus
tom
er10
C-3
A-4
B-5
C-6
BE
E P
rogr
am S
trat
egy
Ana
lyst
, Pro
gram
Str
ateg
y, L
IPA
, C&
IF
Cus
tom
erO
pen
11C
-3A
-4B
-5C
-6L-
7IA
naly
st, L
IPA
Bus
ines
s, P
roje
ct M
anag
emen
tF
Cus
tom
er12
C-3
A-4
B-5
C-6
M-7
GA
naly
st, L
IPA
Res
iden
tial
FC
usto
mer
13C
-3A
-4B
-5C
-6N
-7E
Ana
lyst
, LIP
A E
valu
atio
nF
Cus
tom
erO
pen
14C
-3A
-4B
-5E
Dire
ctor
, Alli
ance
/ V
endo
r S
trat
egy
CC
usto
mer
15C
-3A
-4B
-5H
-6C
Pro
gram
Man
ager
, Mar
ket S
trat
egy,
Ene
rgy
Effi
cien
cy S
trat
egy
DC
usto
mer
16C
-3A
-4B
-5H
-6D
Pro
gram
Man
ager
, Mar
ket S
trat
egy,
Cus
tom
er T
echn
olog
y &
Sus
tain
abili
t yE
Cus
tom
er17
C-3
A-4
C-5
A-6
IQ
uant
itativ
e A
naly
st, A
naly
tics,
Mod
elin
g &
Ene
rgy
For
ecas
ting
EC
usto
mer
Ope
n18
C-3
A-4
D-5
A-6
B-7
MR
epre
sent
ativ
e, A
ccou
nt D
evel
opm
ent,
Lg. C
omm
erci
al S
ales
, Ups
tate
NY
EC
usto
mer
19C
-3A
-4D
-5A
-6C
-7F
Rep
rese
ntat
ive,
Insi
de S
ales
, Gas
, SM
B G
as S
ale
sE
Cus
tom
er20
C-3
A-4
D-5
A-6
D-7
IT
echn
ical
Sup
port
Con
sulta
nt, T
echn
ical
Sal
es &
Eng
inee
ring
Sup
port
, NE
FC
usto
mer
21C
-3A
-4D
-5A
-6E
-7I
Rep
rese
ntat
ive,
Insi
de S
ales
, Gas
, SM
B G
as S
ale s
EC
usto
mer
22C
-3A
-4D
-5F
-6B
-7H
Sal
es S
uppo
rt R
epre
sent
ativ
e, G
as S
ales
Sup
port
, NE
FC
usto
mer
23C
-3A
-4D
-5F
-6B
-7I
Sal
es S
uppo
rt R
epre
sent
ativ
e, G
as S
ales
Sup
port
, NE
FC
usto
mer
24C
-3A
-4D
-5F
-6E
-7B
Sal
es S
uppo
rt R
epre
sent
ativ
e, S
ales
Sup
port
, Alb
any
FC
usto
mer
25C
-3A
-4D
-5F
-6E
-7D
Sal
es P
roce
ssin
g A
ssoc
Ana
lyst
, Sal
es S
uppo
rt, A
lban
yF
Cus
tom
er26
C-3
A-4
E-5
B-6
C-7
GG
as S
ched
uler
, Gas
Sch
edul
ing
EC
usto
mer
Ope
n27
C-3
A-4
E-5
C-6
CF
inan
cial
/ M
ulti
Com
mod
ity T
rade
r, O
rigin
atio
n &
Pric
e V
olat
ility
Mgm
tD
Cus
tom
er28
C-3
A-4
E-5
G-6
B-7
BE
lect
ric T
rade
r, W
hole
sale
Ele
ctric
Sup
ply,
NE
DC
usto
mer
Ope
n29
CA
-2A
-3E
-4C
Sen
ior
Gov
ernm
ent R
elat
ions
Rep
rese
ntat
ive,
Lon
g Is
land
EC
orpo
rate
Affa
irsO
pen
30F
-2A
-3A
-4A
-5A
-6A
-7A
-8C
Acc
ount
ant,
KE
DLI
EF
inan
ce31
F-2
A-3
A-4
A-5
A-6
E-7
B-8
BA
naly
st, P
lant
Acc
ount
ing
EF
inan
ce32
F-2
A-3
A-4
G-5
CP
rogr
am M
anag
er, P
erfo
rman
ce A
naly
sis
DF
inan
ce33
F-2
A-3
A-4
G-5
C-6
BA
naly
st, P
erfo
rman
ce A
naly
tics
EF
inan
ceO
pen
34H
R-2
A-3
A-4
A-5
A-6
AA
naly
st, C
ompe
nsat
ion
& B
enef
itsE
Hum
an R
esou
rces
35H
R-2
A-3
A-4
G-5
C-6
CIn
stru
ctor
, Gas
, New
Eng
land
EH
uman
Res
ourc
esO
pen
36H
R-2
A-3
A-4
G-5
C-6
FIn
stru
ctor
, Gas
, New
Eng
land
EH
uman
Res
ourc
es37
HR
-2A
-3A
-4G
-5E
-6I
Inst
ruct
or, E
lect
ric, U
psta
te N
YE
Hum
an R
esou
rces
Ope
n38
HR
-2A
-3A
-4G
-5E
-6K
Sr.
Inst
ruct
or, E
lect
ric, U
psta
te N
YE
Hum
an R
esou
rces
39L-
2A-3
A-4
A-5
C-6
EA
ssoc
iate
Cou
nsel
, Ups
tate
NY
Reg
ulat
ory
ELe
gal
Ope
n40
L-2A
-3A
-4B
-5C
-6A
Sen
ior
Cou
nsel
I, M
A R
egul
ator
yC
Lega
l41
NS
-3A
-4E
-5D
-6A
-7E
Eng
inee
r, U
tility
of t
he F
utur
e, A
dvan
ced
Eng
inee
ring
EN
etw
ork
Str
ateg
yO
pen
42N
S-3
A-4
E-5
I-6G
Ana
lyst
, Ass
et D
ata
& A
naly
tics
EN
etw
ork
Str
ateg
yO
pen
43N
S-3
A-4
E-5
I-6H
Sr.
Ana
lyst
, Ass
et D
ata
& A
naly
tics
EN
etw
ork
Str
ateg
y44
NS
-3A
-4E
-5K
-6C
Veg
etat
ion
Str
ateg
y E
ngin
eer,
Veg
etat
ion
Str
ateg
yD
Net
wor
k S
trat
egy
45N
S-3
A-4
F-5
F-6
C-7
DE
ngin
eer,
Pro
ject
Eng
inee
ring
& D
esig
n, N
E P
ublic
Wor
ksE
Net
wor
k S
trat
egy
Vaca
nt P
ositi
ons
as o
f Dec
embe
r 31,
201
1
Exhibit__(HRP-2) Page 1 of 3
172
Nat
iona
l Gri
d U
SAE
xhib
it _
_ (H
RP
-2)
Pag
e 2
of 3
Num
ber
Posi
tion
Cod
eTi
tleSa
lary
Ban
dFu
nctio
nO
pen
at 3
/26/
2012
46N
S-3
A-4
G-5
B-6
A-7
KE
ngin
eer,
Ele
ctric
Tra
nsm
issi
on P
lann
ing,
NE
EN
etw
ork
Str
ateg
y47
NS
-3A
-4G
-5B
-6B
-7I
Eng
inee
r, E
lect
ric T
rans
mis
sion
Pla
nnin
g, N
YE
Net
wor
k S
trat
egy
48N
S-3
A-4
G-5
D-6
F-7
JD
esig
ner,
Sub
stat
ion
Eng
. & D
esig
n, D
esig
n, N
EE
Net
wor
k S
trat
egy
49N
S-3
A-4
G-5
E-6
A-7
EE
ngin
eer,
Tra
nsm
issi
on E
ngin
eerin
g, P
roje
ct E
ngin
eerin
gE
Net
wor
k S
trat
egy
50N
S-3
A-4
G-5
E-6
NE
ngin
eer,
Tra
nsm
issi
on E
ngin
eerin
gE
Net
wor
k S
trat
egy
51N
S-3
A-4
G-5
F-6
H-7
FC
oord
inat
or, P
rote
ctio
n &
Tel
ecom
, Pol
icy
& S
uppo
rtD
Net
wor
k S
trat
egy
52N
S-3
A-4
G-5
G-6
B-7
DS
uper
viso
r Le
ad E
ngin
eer,
Ele
ctric
Dis
trib
utio
n D
esig
n, D
esig
n, M
A, W
este
rn M
AD
Net
wor
k S
trat
egy
Ope
n53
NS
-3A
-4G
-5G
-6E
-7I
Des
ign
Eng
inee
r, E
lect
ric D
istr
ibut
ion
Des
ign,
Ext
erna
l Des
ign
DN
etw
ork
Str
ateg
yO
pen
54N
S-3
A-4
G-5
H-6
HE
ngin
eer,
Ele
ctric
Ope
ratio
ns, N
EE
Net
wor
k S
trat
egy
55O
PS
-3A
-4A
-5F
-6B
Ass
ocia
te E
stim
atin
g A
naly
st, E
stim
atin
g C
ente
r of
Exc
elle
nce
EO
pera
tions
56O
PS
-3A
-4A
-5F
-6F
-7C
Est
imat
or, E
stim
atin
g C
ente
r of
Exc
elle
nce,
NE
EO
pera
tions
Ope
n57
OP
S-3
A-4
A-5
G-6
ALe
ad P
rogr
am M
anag
er, L
ong
Ter
m P
lann
ing,
Ele
ctric
Dis
trib
utio
n, M
ass/
RI/N
YE
Ope
ratio
nsO
pen
58O
PS
-3A
-4B
-5D
-6K
-7K
Sup
ervi
sor,
Con
stru
ctio
n, D
istr
ibut
ion
Line
s &
Sub
stat
ion
Con
trac
ting,
NY
EO
pera
tions
Ope
n59
OP
S-3
A-4
B-5
E-6
A-7
IP
roje
ct M
anag
er, C
ompl
ex P
roje
ct M
anag
emen
t, N
EE
Ope
ratio
ns60
OP
S-3
A-4
B-5
M-6
A-7
A-8
CS
uper
viso
r, V
eget
atio
n M
anag
emen
t & In
spec
tions
, T&
D F
ores
try,
NE
EO
pera
tions
61O
PS
-3A
-4B
-5M
-6A
-7B
-8D
Sup
ervi
sor,
Veg
etat
ion
Man
agem
ent &
Insp
ectio
ns, T
&D
For
estr
y, N
EE
Ope
ratio
ns62
OP
S-3
A-4
B-5
M-6
B-7
A-8
DS
uper
viso
r, V
eget
atio
n M
anag
emen
t & In
spec
tions
, T&
D F
ores
try,
NY
EO
pera
tions
63O
PS
-3A
-4B
-5M
-6B
-7B
-8C
Sup
ervi
sor,
Veg
etat
ion
Man
agem
ent &
Insp
ectio
ns, T
&D
For
estr
y, N
YE
Ope
ratio
ns64
OP
S-3
A-4
C-5
A-6
A-7
DS
uper
viso
r, D
amag
e P
reve
ntio
n, N
EE
Ope
ratio
nsO
pen
65O
PS
-3A
-4C
-5A
-6B
-7F
Sup
ervi
sor,
Gas
Fie
ld O
pera
tions
, Bos
ton
EO
pera
tions
66O
PS
-3A
-4C
-5A
-6C
-7A
Lead
Sup
ervi
sor,
Gas
Fie
ld O
pera
tions
, Mal
den/
Bev
erl y
EO
pera
tions
67O
PS
-3A
-4C
-5B
-6B
-7C
Sup
ervi
sor,
Gas
Fie
ld O
pera
tions
, LI E
ast
EO
pera
tions
68O
PS
-3A
-4C
-5B
-6B
-7E
Sup
ervi
sor,
Gas
Fie
ld O
pera
tions
, LI E
ast
EO
pera
tions
Ope
n69
OP
S-3
A-4
C-5
B-6
C-7
HS
uper
viso
r, G
as F
ield
Ope
ratio
ns, N
YC
Eas
tE
Ope
ratio
ns70
OP
S-3
A-4
C-5
B-6
G-7
C-8
IS
uper
viso
r, C
onst
ruct
ion,
NY
- In
Hou
se D
owns
tat e
EO
pera
tions
71O
PS
-3A
-4C
-5B
-6G
-7C
-8J
Sup
ervi
sor,
Con
stru
ctio
n, N
Y -
In H
ouse
Dow
nsta
t eE
Ope
ratio
ns72
OP
S-3
A-4
C-5
B-6
G-7
D-8
CS
uper
viso
r, C
onst
ruct
ion,
NY
- A
ux O
p sE
Ope
ratio
ns73
OP
S-3
A-4
C-5
B-6
G-7
ME
ngin
eer,
Con
stru
ctio
n, N
YE
Ope
ratio
ns74
OP
S-3
A-4
C-5
B-6
I-7F
Sup
ervi
sor,
Inst
rum
enta
tion
& R
egul
atio
n, N
YE
Ope
ratio
ns75
OP
S-3
A-4
C-5
CV
P, N
ew E
ngla
nd E
lect
ricB
Ope
ratio
ns76
OP
S-3
A-4
C-5
C-6
B-7
CS
uper
viso
r, O
verh
ead
Line
s, L
inco
lnE
Ope
ratio
ns77
OP
S-3
A-4
C-5
C-6
B-7
FS
uper
viso
r, O
verh
ead
Line
s, P
rovi
denc
eE
Ope
ratio
nsO
pen
78O
PS
-3A
-4C
-5C
-6B
-7K
Sup
ervi
sor,
I&M
Com
plia
nce,
Pro
vide
nce
EO
pera
tions
Ope
n79
OP
S-3
A-4
C-5
C-6
C-7
A-8
DS
uper
viso
r, O
verh
ead
Line
s, E
ast N
E, B
rock
ton
EO
pera
tions
80O
PS
-3A
-4C
-5C
-6C
-7F
Sup
ervi
sor,
Ove
rhea
d Li
nes,
Eas
t NE
, Hop
edal
eE
Ope
ratio
ns81
OP
S-3
A-4
C-5
C-6
C-7
GS
uper
viso
r, O
verh
ead
Line
s, E
ast N
E, H
oped
ale
EO
pera
tions
82O
PS
-3A
-4C
-5C
-6D
-7C
Sup
ervi
sor,
Und
ergr
ound
Lin
es, E
ast N
EE
Ope
ratio
ns83
OP
S-3
A-4
C-5
C-6
F-7
B-8
FS
uper
viso
r, O
verh
ead
Line
s, W
est N
E, M
onso
nE
Ope
ratio
ns84
OP
S-3
A-4
C-5
C-6
F-7
IS
uper
viso
r, O
verh
ead
Line
s, W
est N
E, T
roub
leE
Ope
ratio
ns85
OP
S-3
A-4
C-5
C-6
F-7
JS
uper
viso
r, O
verh
ead
Line
s, W
est N
E, T
roub
leE
Ope
ratio
ns86
OP
S-3
A-4
C-5
C-6
H-7
JS
uper
viso
r, S
ubst
atio
n, W
est N
EE
Ope
ratio
ns87
OP
S-3
A-4
C-5
D-6
B-7
A-8
GO
H L
ine
Sup
ervi
sor
- W
este
rn D
ivis
ion
EO
pera
tions
88O
PS
-3A
-4C
-5D
-6B
-7B
-8I
OH
Lin
e S
uper
viso
r -
Wes
tern
Div
isio
nE
Ope
ratio
ns89
OP
S-3
A-4
C-5
D-6
B-7
GO
H L
ine
Sup
ervi
sor
- W
este
rn D
ivis
ion
EO
pera
tions
90O
PS
-3A
-4C
-5D
-6B
-7H
OH
Lin
e S
uper
viso
r -
Wes
tern
Div
isio
nE
Ope
ratio
ns
Vaca
nt P
ositi
ons
as o
f Dec
embe
r 31,
201
1
Exhibit__(HRP-2) Page 2 of 3
173
Nat
iona
l Gri
d U
SAE
xhib
it _
_ (H
RP
-2)
Pag
e 3
of 3
Num
ber
Posi
tion
Cod
eTi
tleSa
lary
Ban
dFu
nctio
nO
pen
at 3
/26/
2012
91O
PS
-3A
-4C
-5D
-6E
-7F
Und
ergr
ound
Sup
ervi
sor
EO
pera
tions
92O
PS
-3A
-4C
-5D
-6F
-7B
-8H
OH
Lin
e S
uper
viso
r -
Rom
eE
Ope
ratio
ns93
OP
S-3
A-4
C-5
D-6
F-7
GO
H L
ine
Sup
ervi
sor
- P
ulas
kiE
Ope
ratio
ns94
OP
S-3
A-4
C-5
D-6
G-7
CS
tatio
n S
uper
viso
r -
Wes
tern
Div
isio
nE
Ope
ratio
ns95
OP
S-3
A-4
C-5
D-6
H-7
FS
tatio
ns S
uper
viso
r -
Eas
tern
Div
isio
nE
Ope
ratio
ns96
OP
S-3
A-4
C-5
E-6
C-7
A-8
KS
uper
viso
r, C
usto
mer
Met
er S
ervi
ces,
Dow
nsta
te N
Y, M
eter
Rea
ding
, Suf
fol k
EO
pera
tions
97O
PS
-3A
-4C
-5E
-6C
-7B
-8H
Sup
ervi
sor,
Cus
tom
er M
eter
Ser
vice
s, D
owns
tate
NY
, Gre
enpo
int &
Sta
ten
Isla
nd
EO
pera
tions
98O
PS
-3A
-4C
-5E
-6E
-7F
Sup
ervi
sor,
Cus
tom
er M
eter
Ser
vice
s, C
entr
al N
EE
Ope
ratio
nsO
pen
99O
PS
-3A
-4C
-5E
-6E
-7G
Ass
ocia
te S
uper
viso
r, C
usto
mer
Met
er S
ervi
ces,
Cen
tral
NE
EO
pera
tions
100
OP
S-3
A-4
C-5
F-6
B-7
A-8
HT
echn
icia
n, P
rote
ctio
n, N
orth
And
ove
rE
Ope
ratio
ns10
1O
PS
-3A
-4C
-5F
-6B
-7B
-8G
Tec
hnic
ian,
Pro
tect
ion,
Wor
cest
erE
Ope
ratio
ns10
2O
PS
-3A
-4C
-5F
-6B
-7B
-8H
Tec
hnic
ian,
Pro
tect
ion,
Wor
cest
erE
Ope
ratio
ns10
3O
PS
-3A
-4C
-5F
-6C
-7B
Pro
tect
ion
Ops
Sup
ervi
sor
- N
Y W
est B
uffa
loE
Ope
ratio
ns10
4O
PS
-3A
-4D
-5C
-6E
Shi
ft S
uper
viso
r, C
ontr
ol C
ente
r N
Y W
est
EO
pera
tions
105
OP
S-3
A-4
D-5
E-6
OP
ower
Ops
Eng
inee
r / C
oord
inat
or, T
rans
mis
sion
Con
trol
Cen
ter
EO
pera
tions
106
OP
S-3
A-4
D-5
G-6
FO
utag
e C
oord
inat
or, C
ontr
ol C
ente
r, N
ED
Ope
ratio
ns10
7O
PS
-3A
-4D
-5G
-6H
-7D
Shi
ft S
uper
viso
r, C
ontr
ol C
ente
r, N
ED
Ope
ratio
ns10
8O
PS
-3A
-4D
-5G
-6H
-7J
Shi
ft S
uper
viso
r, C
ontr
ol C
ente
r, N
ED
Ope
ratio
ns10
9O
PS
-3A
-4D
-5K
-6F
Sen
ior
Net
wor
k O
pera
tor,
HV
DC
EO
pera
tions
110
OP
S-3
A-4
D-5
K-6
GS
enio
r N
etw
ork
Ope
rato
r, H
VD
CE
Ope
ratio
ns11
1O
PS
-3A
-4E
-5F
-6L
Qua
lity
Insp
ecto
r, F
ield
QA
/ Q
CE
Ope
ratio
nsO
pen
112
RP
-3A
-4C
-5L
Dire
ctor
, Fed
eral
Reg
ulat
ory
Affa
irsC
Reg
ulat
ion
& P
ricin
g11
3R
P-3
A-4
H-5
IS
enio
r A
naly
st, L
IPA
ER
egul
atio
n &
Pric
ing
114
SH
E-3
A-4
A-5
DM
anag
er, R
egul
atio
n C
ompl
ianc
e/In
cide
nt P
reve
ntio
n M
anag
er
DS
HE
115
SH
E-3
A-4
A-5
F-6
DS
afet
y R
epre
sent
ativ
e, N
ew E
ngla
ndE
SH
E11
6S
HE
-3A
-4A
-5F
-6F
Saf
ety
Rep
rese
ntat
ive,
New
Eng
land
ES
HE
117
SS
-3A
-4D
-5G
-6B
Sr.
Sup
ervi
sor,
Fac
ility
Ope
ratio
ns, U
psta
te N
YE
Sha
red
Ser
vice
s11
8S
S-3
A-4
F-5
B-6
KA
naly
st, T
rain
ing
& S
uppo
r tE
Sha
red
Ser
vice
s
Vaca
nt P
ositi
ons
as o
f Dec
embe
r 31,
201
1
Exhibit__(HRP-2) Page 3 of 3
174
E
xhibit __ (HR
P-3)
Testimony of The Human Resources Panel
Exhibit __ (HRP-3)
Comprehensive Evaluation of National Grid’s USA’s Compensation and Benefits Package
175
Testimony of The Human Resources Panel
Exhibit __ (HRP-3)
Schedule 1
176
©2
01
2 T
ow
ers
Wat
son
. All
rig
hts
re
serv
ed
. Pro
prie
tary
an
d C
on
fide
ntia
l. F
or
To
we
rs W
atso
n a
nd
To
we
rs W
atso
n c
lien
t u
se o
nly
.to
wer
swat
son.
com
1
Com
petit
ive
Ass
essm
ent o
f Nat
iona
l Grid
’s T
otal
C
ompe
nsat
ion
and
Ben
efits
Pac
kage
Nat
iona
l Grid
Gen
eral
& E
nerg
y In
dust
ry
Nat
iona
l Grid
as
a
Perc
ent o
f Mar
ket
Tota
l C
ash
Com
pens
atio
n$1
08.1
$118
.491
%
Ben
efits
$28.
0$2
7.9
100%
Tota
l $1
36.1
$146
.393
%
T
he a
bove
ana
lysi
s co
mbi
nes
aver
age
tota
l cas
h co
mpe
nsat
ion
(sal
ary
and
ince
ntiv
e) a
nd b
enef
it va
lue
resu
lts fr
om th
e M
anag
emen
t com
pens
atio
n st
udy
and
the
Man
agem
ent B
EN
VA
L
C
ompe
nsat
ion
resu
lts a
re a
vera
ge r
esul
ts a
cros
s sa
lary
ban
ds fo
rN
atio
nal G
rid a
nd th
e pe
er g
roup
B
EN
VA
L re
sults
are
ave
rage
dol
lar
valu
es fo
r N
atio
nal G
rid a
nd th
e pe
er g
roup
C
ompe
nsat
ion
data
is b
ased
on
actu
al d
ata
as r
epor
ted
by e
ach
peer
com
pany
D
ue to
ant
itrus
t reg
ulat
ions
spe
cific
pee
r co
mpa
ny in
form
atio
n is
una
vaila
ble
B
enef
it da
ta is
bas
ed o
n th
e va
lue
of b
enef
its fo
r ea
ch p
eer
com
pany
T
he v
alue
is d
eter
min
ed b
y ap
plyi
ng a
sta
ndar
d se
t of a
ctua
rial m
etho
ds a
nd a
ssum
ptio
ns to
a c
omm
on e
mpl
oyee
po
pula
tion.
Thi
s es
tabl
ishe
s a
cont
rolle
d en
viro
nmen
t in
whi
ch d
iffer
ence
s in
val
ue a
re e
xclu
sive
ly a
fun
ctio
n of
the
di
ffere
nces
in p
lan
prov
isio
ns.
T
he r
elat
ive
valu
es a
re n
ot in
tend
ed to
rep
rese
nt a
ctua
l cos
ts in
curr
ed b
y pl
an s
pons
ors.
Pla
n sp
onso
rs m
ay
expe
rienc
e di
ffere
nce
in b
enef
it co
sts
due
to f
acto
rs n
ot r
efle
cted
in t
he B
EN
VA
L in
clud
ing
but
not
limite
d to
–va
ryin
g pa
rtic
ipan
t de
mog
raph
ics,
reg
iona
l cos
t diff
eren
ces,
or
diffe
renc
es in
fund
ing
or p
rovi
der
arra
ngem
ents
, et
c.
If
Nat
iona
l Grid
did
not
pro
vide
var
iabl
e pa
y, N
atio
nal G
rid s
alar
y co
mpe
nsat
ion
wou
ld a
vera
ge
nine
teen
per
cent
bel
ow m
edia
n m
arke
t lev
els
of to
tal c
ash
com
pens
atio
n (s
alar
y an
d in
cent
ive)
and
N
atio
nal G
rid to
tal c
ompe
nsat
ion
(sal
ary
and
bene
fits)
wou
ld a
vera
ge fi
fteen
per
cent
bel
ow m
edia
n m
arke
t le
vels
of t
otal
com
pens
atio
n (s
alar
y, in
cent
ive
and
bene
fits )
Exh
ibit_
_HR
P-3
Sch
edul
e 1
Pag
e 1
of 1
Nat
iona
l Grid
US
A
Exhibit__(HRP-3) Schedule 1 Page 1 of 1
177
Testimony of The Human Resources Panel
Exhibit __ (HRP-3)
Schedule 2
178
Nat
iona
l Grid
US
AE
xhib
it _
_ (H
RP
-3)
Sch
edul
e 2
Pag
e 1
of 2
Nat
iona
l Grid
USA
Targ
et C
ompe
nsat
ion
as a
Per
cent
of M
arke
t Ass
essm
ent
Util
ity &
Gen
eral
Indu
stry
Pee
r Gro
up
Sala
ryTa
rget
Tot
al C
ash
Com
pens
atio
n4Sa
lary
Targ
et T
otal
Cas
h C
ompe
nsat
ion4
Sala
rySa
lary
Plu
s Ta
rget
In
cent
ive
$40,
000
- $6
0,00
014
43%
$54.
9$5
7.9
$57.
4$6
1.3
96%
94%
$60,
000
- $8
0,00
084
019
%$7
0.0
$75.
8$7
4.2
$80.
694
%94
%
$80,
000
- $1
00,0
001,
883
43%
$89.
2$9
8.7
$95.
1$1
05.5
94%
94%
$100
,000
- $
120,
000
960
22%
$109
.1$1
23.7
$117
.6$1
33.9
93%
92%
$120
,000
- $
140,
000
356
8%$1
29.5
$149
.2$1
45.3
$172
.189
%87
%
$140
,000
- $
160,
000
148
3%$1
49.7
$176
.5$1
74.7
$213
.586
%83
%
> $
160,
000
982%
$188
.9$2
34.4
$211
.9$2
81.8
89%
83%
Ave
rage
64,
429
100%
$96.
2$1
08.1
$104
.1$1
18.4
92%
91%
(1)
Thi
s pr
imar
y so
rt o
f sal
ary
band
s is
bas
ed o
n N
atio
nal G
rid s
alar
ies.
(2)
The
tota
l num
ber
of in
cum
bent
s in
this
ana
lysi
s is
4,4
29 w
ithin
399
title
s, w
hich
ref
lect
s 85
.75%
of t
he to
tal m
anag
emen
t em
ploy
ee p
opul
atio
n as
of 1
0/31
/201
1.(3
) M
arke
t com
pens
atio
n da
ta h
as b
een
upda
ted
by 3
.0%
to A
pril
1, 2
012
base
d on
the
2011
-201
2 T
ower
s W
atso
n S
alar
y B
udge
t Sur
vey.
(4)
Tar
get t
otal
cas
h co
mpe
nsat
ion
refle
cts
2012
bas
e sa
larie
s pl
us ta
rget
ann
ual i
ncen
tive
awar
d.(5
) R
efle
cts
the
Nat
iona
l Grid
Sal
ary
and
Tar
get T
otal
Cas
h di
vide
d by
the
Mar
ket S
alar
y an
d T
arge
t Tot
al C
ash
for
each
sal
ary
band
.(6
) A
vera
ge r
efle
cts
wei
ghte
d av
erag
e ba
sed
on th
e nu
mbe
r of
incu
mbe
nts
in e
ach
sala
ry b
and.
Nat
iona
l Grid
Ave
rage
Tar
get
Com
pens
atio
n by
Mar
ket S
alar
y B
and
Mar
ket A
vera
ge T
arge
t Com
pens
atio
nby
Mar
ket S
alar
y B
and3
Nat
iona
l Grid
Com
pens
atio
nas
a P
erce
nt o
f Mar
ket5
Sala
ry B
ands
1Pe
rcen
t of
Incu
mbe
nts
Num
ber o
f In
cum
bent
s2
Nat
iona
l Grid
sal
ary
and
targ
et to
tal c
ompe
nsat
ion
are
belo
w th
e co
mpe
titiv
e m
arke
t but
with
in th
e 10
% c
orrid
or
Exhibit__(HRP-3) Schedule 2 Page 1 of 2
179
Nat
iona
l Grid
US
AE
xhib
it _
_ (H
RP
-3)
Sch
edul
e 2
Pag
e 2
of 2
Nat
iona
l Grid
USA
Targ
et V
aria
ble
Pay
as a
Per
cent
of M
arke
t Ass
sess
men
tU
tility
& G
ener
al In
dust
ry P
eer G
roup
$40,
000
- $6
0,00
014
43%
5%7%
76%
$60,
000
- $8
0,00
084
019
%8%
8%10
0%
$80,
000
- $1
00,0
001,
883
43%
11%
10%
101%
$100
,000
- $
120,
000
960
22%
13%
14%
93%
$120
,000
- $
140,
000
356
8%15
%19
%78
%
$140
,000
- $
160,
000
148
3%18
%24
%74
%
> $
160,
000
982%
23%
32%
73%
Ave
rage
44,
429
100%
11%
12%
92%
(1)
Thi
s pr
imar
y so
rt o
f sal
ary
band
s is
bas
ed o
n N
atio
nal G
rid s
alar
ies.
(2)
The
tota
l num
ber
of in
cum
bent
s in
this
ana
lysi
s is
4,4
29 w
ithin
399
title
s, w
hich
ref
lect
s 85
.75%
of t
he to
tal m
anag
emen
t em
ploy
ee p
opul
atio
n as
of 1
0/31
/201
1(3
) R
efle
cts
the
aver
age
Nat
iona
l Grid
Tar
get V
aria
ble
% d
ivid
ed b
y th
e av
erag
e M
arke
t Tar
get V
aria
ble
% fo
r ea
ch s
alar
y ba
nd.
(4)
Ave
rage
ref
lect
s w
eigh
ted
aver
age
base
d on
the
num
ber
of in
cum
bent
s in
eac
h sa
lary
ban
d.
Sala
ry B
ands
1N
umbe
r of
Incu
mbe
nts2
Mar
ket A
vera
ge
Targ
et V
aria
ble
%by
Mar
ket S
alar
y B
and
Nat
iona
l Grid
Ta
rget
Var
iabl
e %
as a
Per
cent
of M
arke
t3
Perc
ent o
f In
cum
bent
s
Nat
iona
l Grid
Ave
rage
Ta
rget
Var
iabl
e %
by
Mar
ket S
alar
y B
and
On
aver
age,
Nat
iona
l Grid
targ
et in
cent
ives
are
bel
ow th
e m
arke
t ave
rage
but
with
in th
e 10
% c
orrid
or
Exhibit__(HRP-3) Schedule 2 Page 2 of 2
180
Testimony of The Human Resources Panel
Exhibit __ (HRP-3)
Schedule 3
181
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed.
Nat
iona
l Grid
BE
NV
AL
Ana
lysi
s fo
r 201
2 N
on-U
nion
Ben
efits
APR
IL 2
, 201
2
Exhibit__(HRP-3) Schedule 3 Page 1 of 43
182
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m2
Tabl
e of
con
tent
s
O
verv
iew
of C
ompe
titiv
e A
sses
smen
t
E
ntire
Ben
efit
Pro
gram
R
etire
men
t Ben
efits
A
ctiv
e B
enef
its
S
umm
ary
Exhibit__(HRP-3) Schedule 3 Page 2 of 43
183
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m3
Ove
rvie
w o
f com
petit
ive
asse
ssm
ent
To
wer
s W
atso
n m
aint
ains
a d
atab
ase
of b
enef
it pr
ovis
ions
for o
ver 1
,300
com
pani
es
B
EN
VA
L de
term
ines
a v
alue
for t
hese
ben
efits
by
appl
ying
a s
tand
ard
met
hodo
logy
to a
st
anda
rd e
mpl
oyee
pop
ulat
ion
B
enef
it pr
ogra
ms
are:
C
ompa
red
on a
rela
tive
valu
e ba
sis
betw
een
empl
oyer
s —
a sc
ore
of 1
00 re
pres
ents
the
aver
age
valu
e fo
r the
com
para
tor g
roup
S
core
s ar
e de
term
ined
on
a do
llar v
alue
bas
is re
lativ
e to
the
aver
age
valu
e
Th
is re
port
incl
udes
the
follo
win
g:
List
of p
eer c
ompa
nies
incl
uded
in th
e st
udy
E
xecu
tive
sum
mar
y of
stu
dy re
sults
O
verv
iew
of t
he b
enef
its e
nviro
nmen
t
Rel
ativ
e va
lue
com
paris
on fo
r the
tota
l pro
gram
and
indi
vidu
al b
enef
it pr
ogra
ms
B
reak
dow
n of
ben
efit
valu
es b
y co
mpo
nent
pro
gram
s
Th
roug
hout
this
doc
umen
t, “to
tal v
alue
” ref
ers
to th
e po
sitio
ning
of t
he b
enef
it pr
ogra
ms
incl
udin
g th
e va
lue
of e
mpl
oyee
con
tribu
tions
; “em
ploy
er v
alue
” ref
ers
to th
e va
lue
afte
r em
ploy
ee c
ontri
butio
ns h
ave
been
ded
ucte
d
Th
e E
ntire
Ben
efit
Pro
gram
tota
l and
em
ploy
er v
alue
s ar
e pr
imar
ily d
riven
by
the
valu
e of
the
retir
emen
t pla
ns, a
ctiv
e an
d po
st-re
tirem
ent m
edic
al p
lans
, and
vac
atio
n an
d ho
liday
pro
gram
s,
whi
ch c
ompr
ise
the
vast
maj
ority
of t
he p
rogr
am v
alue
s
Exhibit__(HRP-3) Schedule 3 Page 3 of 43
184
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m4
Ove
rvie
w o
f com
petit
ive
asse
ssm
ent
To
wer
s W
atso
n ha
s co
nduc
ted
a co
mpe
titiv
e as
sess
men
t com
parin
g be
nefit
leve
ls fo
r bot
h N
atio
nal G
rid (N
GG
) and
K
eyS
pan
(KE
Y) r
elat
ive
to 3
8 pe
er o
rgan
izat
ions
:
Th
roug
hout
this
doc
umen
t, w
e ha
ve in
clud
ed p
lan
sum
mar
y ch
arts
for e
ach
bene
fit
In
the
Ret
irem
ent s
ectio
n, w
e pr
ovid
e pl
an s
umm
arie
s fo
r eac
h be
nefit
pro
gram
for N
atio
nal G
rid
In
the
Act
ive
sect
ion,
we
prov
ide
plan
sum
mar
ies
for e
ach
bene
fit p
rogr
am a
nd N
atio
nal G
rid, a
s w
ell a
s ra
nges
(the
lo
wes
t to
high
est v
alue
for t
he g
roup
of v
alue
s), a
vera
ges
(the
mea
n of
a g
roup
of v
alue
s), a
nd m
odes
(the
mos
t fre
quen
t val
ue in
a g
roup
of v
alue
s), w
here
pos
sibl
e fo
r the
com
petit
or g
roup
; whe
re a
vera
ges
coul
d no
t be
calc
ulat
ed, w
e ca
lcul
ated
a ra
nge
and/
or m
ode
only
Fo
r ben
efits
that
diff
er fo
r Leg
acy
Nat
iona
l Grid
and
Leg
acy
Key
Spa
n, w
e ha
ve in
clud
ed b
oth
bene
fit s
umm
arie
s
3M
E
nter
gy C
orpo
ratio
n
ON
EO
K, I
nc.
A
mer
en C
orpo
ratio
n
Exe
lon
Cor
pora
tion
P
acifi
c G
as a
nd E
lect
ric C
ompa
ny
A
mer
ican
Ele
ctric
Pow
er S
yste
m
FedE
x G
roun
d
Pitn
ey B
owes
Inc.
A
mer
ican
Exp
ress
Com
pany
Fi
delit
y In
vest
men
ts
PP
L
A
mer
ican
Inte
rnat
iona
l Gro
up, I
nc.
H
ess
Cor
pora
tion
P
rogr
ess
Ene
rgy,
Inc.
A
mer
ican
Wat
er
Inte
grys
Ene
rgy
Gro
up, I
nc.
P
ublic
Ser
vice
Ent
erpr
ise
Gro
up
C
ente
rPoi
nt E
nerg
y, In
c.
Inte
rnat
iona
l Bus
ines
s M
achi
nes
Cor
pora
tion
S
empr
a E
nerg
y
C
itigr
oup
IS
O N
ew E
ngla
nd
Sou
ther
n C
alifo
rnia
Edi
son
C
onso
lidat
ed E
diso
n C
ompa
ny o
f New
Yor
k, In
c.
Mas
terC
ard
Wor
ldw
ide
Tr
ansC
anad
a U
SA
Ser
vices
Inc.
C
onst
ella
tion
Ene
rgy
Gro
up, I
nc.
M
DU
Res
ourc
es G
roup
, Inc
.
Uni
ted
Sta
tes
Ste
el C
orpo
ratio
n
D
TE E
nerg
y
Nor
thea
st U
tiliti
es S
ervic
e C
ompa
ny
Uni
ted
Tech
nolo
gies
Cor
pora
tion
D
uke
Ene
rgy
Cor
pora
tion
N
STA
R
Ver
izon
E
nerg
y Fu
ture
Hol
ding
s C
orp.
N
YIS
O
Exhibit__(HRP-3) Schedule 3 Page 4 of 43
185
Entir
e B
enef
its P
rogr
am
tow
ersw
atso
n.co
m5
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
Pre
sent
atio
n2
Exhibit__(HRP-3) Schedule 3 Page 5 of 43
186
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m6
Entir
e be
nefit
pro
gram
sco
re a
nd ra
nkEn
tire
Bene
fit P
rogr
am S
core
and
Ran
k Sco
reRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid10
0.6
20/4
0
Lega
cy K
eysp
an10
0.2
21/4
0
Tota
l Val
ue
Lega
cy N
atio
nal G
rid10
8.2
7/40
Lega
cy K
eysp
an10
8.9
9/40
N
atio
nal G
rid’s
and
Key
Spa
n’s
empl
oyer
and
tota
l val
ues
are
alm
ost i
dent
ical
. A
lthou
gh p
rogr
am d
esig
n ha
s be
en a
ligne
d fo
r mos
t ben
efits
, a fe
w s
till d
iffer
:
Pos
t-ret
irem
ent m
edic
al
Sho
rt-/lo
ng-te
rm d
isab
ility
N
atio
nal G
rid’s
and
Key
Spa
n’s
scor
es in
dica
te th
at p
rogr
ams,
bas
ed o
n em
ploy
er v
alue
, are
at t
he a
vera
ge
To
tal v
alue
refle
cts
the
valu
e af
ter e
mpl
oyee
con
tribu
tions
; em
ploy
er v
alue
re
pres
ents
val
ue n
et o
f em
ploy
ee c
ontri
butio
ns. L
ower
em
ploy
er v
alue
s th
an
tota
l val
ues
indi
cate
that
em
ploy
ee c
ontri
butio
ns a
re g
reat
er th
an p
eers
’
Exhibit__(HRP-3) Schedule 3 Page 6 of 43
187
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m7
Entir
e be
nefit
pro
gram
Exhibit__(HRP-3) Schedule 3 Page 7 of 43
188
Ret
irem
ent B
enef
its
tow
ersw
atso
n.co
m8
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
Pre
sent
atio
n2
Exhibit__(HRP-3) Schedule 3 Page 8 of 43
189
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m9
All
retir
emen
t eve
nts
scor
e an
d ra
nk –
excl
udin
g st
ock
purc
hase
pla
n
Ret
irem
ent e
vent
s re
fer t
o th
e va
rious
ben
efits
that
bec
ome
avai
labl
e up
on a
n em
ploy
ee’s
retir
emen
t. Th
is w
ould
enc
ompa
ss d
efin
ed b
enef
it/de
fined
con
tribu
tion
bene
fits,
pos
t-ret
irem
ent m
edic
al a
nd/o
r den
tal b
enef
its a
nd p
ost-r
etire
men
t life
in
sura
nce/
AD
&D
cov
erag
e. O
ther
long
-term
ince
ntiv
e pr
ogra
ms
such
as
empl
oyee
st
ock
purc
hase
pla
ns a
nd p
rofit
-sha
ring
plan
s w
ould
fall
in th
is c
ateg
ory
as w
ell.
N
atio
nal G
rid’s
and
Key
Spa
n’s
empl
oyer
pla
n va
lues
are
bel
ow a
vera
ge. L
ower
em
ploy
er v
alue
s th
an to
tal v
alue
s in
dica
te g
reat
er e
mpl
oyee
cos
t-sha
re re
lativ
e to
pe
ers
Retir
emen
t Eve
nt S
core
and
Ran
k - e
xclu
ding
Sto
ck P
urch
ase
Plan
Scor
eRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid97
.221
/40
Lega
cy K
eysp
an97
.122
/40
Tota
l Val
ue
Lega
cy N
atio
nal G
rid99
.221
/40
Lega
cy K
eysp
an10
1.9
20/4
0
Exhibit__(HRP-3) Schedule 3 Page 9 of 43
190
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m10
All
retir
emen
t eve
nts
excl
udin
g st
ock
purc
hase
pla
n
Exhibit__(HRP-3) Schedule 3 Page 10 of 43
191
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m11
All
retir
emen
t eve
nts
scor
e an
d ra
nk –
incl
udin
g st
ock
purc
hase
pla
n
Whe
n st
ock
purc
hase
is a
dded
, Nat
iona
l Grid
’s a
nd K
eyS
pan’
s re
tirem
ent e
vent
pl
an v
alue
s in
crea
se. B
oth
empl
oyer
val
ue a
nd to
tal v
alue
are
abo
ve a
vera
ge
In
add
ition
to th
e st
ock
purc
hase
pla
n, th
e pr
imar
y dr
iver
of N
atio
nal G
rid’s
and
K
eyS
pan’
s ab
ove-
aver
age
scor
es a
nd ra
nks
for r
etire
men
t eve
nts
is th
e de
fined
co
ntrib
utio
n pl
an Retir
emen
t Eve
nt S
core
and
Ran
k - i
nclu
ding
Sto
ck P
urch
ase
Pla
nS
core
Ran
kEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid10
2.4
17/4
0
Lega
cy K
eysp
an10
2.4
17/4
0
Tota
l Val
ue
Lega
cy N
atio
nal G
rid11
5.5
9/40
Lega
cy K
eysp
an11
8.0
6/40
Exhibit__(HRP-3) Schedule 3 Page 11 of 43
192
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m12
All
retir
emen
t eve
nts
incl
udin
g st
ock
purc
hase
pla
n
Rel
ativ
e ra
nkin
gs c
hang
e w
hen
the
Sto
ck P
urch
ase
Pla
n is
add
ed in
Exhibit__(HRP-3) Schedule 3 Page 12 of 43
193
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m13
Def
ined
ben
efit
21
of t
he c
ompe
titor
s pr
ovid
e a
defin
ed b
enef
it pl
an in
add
ition
to a
def
ined
co
ntrib
utio
n pl
an
Li
ke N
atio
nal G
rid, 1
7 co
mpa
rato
r com
pani
es d
o no
t offe
r a d
efin
ed b
enef
it pl
an
Exhibit__(HRP-3) Schedule 3 Page 13 of 43
194
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m14
Def
ined
con
trib
utio
n de
sign
N
o de
fined
ben
efit
plan
is
avai
labl
e to
new
hire
s
N
atio
nal G
rid (i
nclu
ding
Le
gacy
Key
Spa
n) p
rovi
des
a po
ints
-bas
ed d
efin
ed
cont
ribut
ion
prog
ram
Nat
iona
l Gri
d D
efin
ed C
ontri
butio
n P
lan
Mat
ched
Con
tribu
tions
Em
ploy
ee c
ontri
butio
ns:
1% to
8%
of p
aypr
e- a
nd/o
r pos
t-tax
Em
ploy
er c
ontri
butio
ns -
mat
ch:
50%
of e
mpl
oyee
co
ntrib
utio
ns m
atch
ed
Aut
o-en
rollm
ent:
6%
Aut
o-es
cala
tion:
Non
e
Em
ploy
er C
ontri
butio
ns -
Cor
e*4%
to 8
% b
ased
on
age
and
year
s of
ser
vice
Ves
ting
100%
at 3
yea
rs o
f se
rvic
e
*Em
ploy
ee c
ontri
butio
n no
t req
uire
d
Exhibit__(HRP-3) Schedule 3 Page 14 of 43
195
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m15
Def
ined
con
trib
utio
n sc
ore
and
rank
–ex
clud
ing
stoc
k pu
rcha
se p
lan
N
atio
nal G
rid’s
def
ined
con
tribu
tion
plan
is a
bove
the
aver
age.
Thi
s is
attr
ibut
able
to th
e fa
ct th
at N
atio
nal G
rid o
ffers
a d
efin
ed c
ontri
butio
n pl
an w
ith c
ore
empl
oyer
con
tribu
tions
in
lieu
of a
def
ined
ben
efit
plan
A
ll of
the
com
petit
or re
tirem
ent p
rogr
ams
incl
ude
a sa
ving
s pl
an; 1
6 of
them
als
o pr
ovid
e a
com
pany
aut
omat
ic o
r pro
fit s
harin
g el
emen
t; 10
of t
hem
als
o pr
ovid
e a
stoc
k pu
rcha
se p
rogr
am
E
xcep
t for
thre
e, a
ll of
thos
e pr
ovid
ing
a pr
ofit
shar
ing
are
abov
e av
erag
e
Fo
ur o
f the
com
petit
ors
prov
ide
a m
axim
um m
atch
ing
cont
ribut
ion
abov
e 6%
; 11
prov
ide
6%; 8
pro
vide
s 3%
or l
ess;
and
the
othe
rs p
rovi
de b
etw
een
3% a
nd 6
%
Defin
ed C
ontr
ibut
ion
Scor
e an
d Ra
nkS
core
Rank
Empl
oyer
Val
ue
Lega
cy N
atio
nal G
rid16
2.1
5/40
Lega
cy K
eysp
an16
2.1
5/40
Tota
l Val
ue
Lega
cy N
atio
nal G
rid13
5.1
4/40
Lega
cy K
eysp
an13
5.1
4/40
Exhibit__(HRP-3) Schedule 3 Page 15 of 43
196
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m16
Def
ined
con
trib
utio
n ex
clud
ing
stoc
k pu
rcha
se p
lan
Exhibit__(HRP-3) Schedule 3 Page 16 of 43
197
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m17
Def
ined
con
trib
utio
n an
d de
fined
ben
efit
scor
e an
d ra
nk –
excl
udin
g st
ock
purc
hase
21
com
pani
es o
ffer b
oth
a de
fined
ben
efit
and
a de
fined
con
tribu
tion
plan
N
atio
nal G
rid o
nly
offe
rs a
def
ined
con
tribu
tion
plan
N
atio
nal G
rid’s
pla
n ra
nks
and
scor
es a
bove
ave
rage
whe
n co
nsid
erin
g th
e em
ploy
er v
alue
of r
etire
men
t ben
efits
Its
low
er e
mpl
oyer
pla
n va
lue
than
tota
l val
ue in
dica
tes
high
er-th
an-a
vera
ge e
mpl
oyee
co
ntrib
utio
ns
Defin
ed B
enef
it an
d C
ontri
butio
n Sc
ore
and
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
104.
417
/40
Lega
cy K
eysp
an10
4.4
17/4
0
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
105.
913
/40
Lega
cy K
eysp
an10
5.9
13/4
0
Scor
eRa
nk
Exhibit__(HRP-3) Schedule 3 Page 17 of 43
198
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m18
Def
ined
ben
efit
and
defin
ed c
ontr
ibut
ion
–ex
clud
ing
stoc
k pu
rcha
se
Exhibit__(HRP-3) Schedule 3 Page 18 of 43
199
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m19
Post
-ret
irem
ent m
edic
al b
enef
its c
ompa
rison
Th
e fo
llow
ing
tabl
e co
mpa
res
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s pl
an d
esig
ns
N
atio
nal G
rid o
ffers
a M
edic
are
Sup
plem
ent t
o po
st-6
5 re
tiree
s; K
eyS
pan
offe
rs a
pos
t-65
PP
O p
lan
Leg
acy
Natio
nal G
rid
Leg
acy
KeyS
pan
Pre-
65Ty
pe o
f Pla
nE
PO
EP
OP
lan
Des
ign
Sam
e as
Act
iveS
ame
as A
ctive
Par
ticip
atio
n R
equi
rem
ents
Age
60
& 1
0 ye
ars
of s
ervic
eA
ge 6
0 &
10
year
s of
ser
vice
Def
ined
Dol
lar B
enef
itN
one
Non
eR
etire
e C
ontri
butio
ns50
% o
f pre
miu
m a
t ret
irem
ent +
10
0% o
f cos
t inc
reas
es th
erea
fter
50%
of p
rem
ium
at r
etire
men
t + 1
00%
of
cost
incr
ease
s th
erea
fter
Post
-65
Type
of P
lan
Med
icar
e S
uppl
emen
tP
PO
Par
ticip
atio
n R
equi
rem
ents
10 y
ears
of s
ervic
e10
yea
rs o
f ser
vice
Pla
n D
esig
nS
ame
as A
ctive
Ded
uctib
leP
erso
n: $
100;
Fam
ily M
ax: n
one
Per
son:
$25
0; F
amily
Max
: $50
0O
ut-o
f-poc
ket m
axim
um (i
nclu
des
dedu
ctib
le)
Per
son:
non
e; F
amily
Max
: non
eP
erso
n: $
1,25
0; F
amily
Max
: $2,
500
Pre
scrip
tion
Dru
gs (r
etai
l)G
ener
ic10
0%10
0%; $
10 c
opay
Bra
nd80
%10
0%; $
25 c
opay
form
/$40
non
-form
.R
etire
e C
ontri
butio
ns10
0% o
f pre
miu
m10
0% o
f pre
miu
m
Exhibit__(HRP-3) Schedule 3 Page 19 of 43
200
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m20
Post
-ret
irem
ent m
edic
al b
enef
its s
core
and
rank
Post
-retir
emen
t Med
ical
Sco
re a
nd R
ank Sc
ore
Rank
Empl
oyer
Val
ue
Lega
cy N
atio
nal G
rid22
.025
/40
Lega
cy K
eysp
an21
.926
/40
Tota
l Val
ue
Lega
cy N
atio
nal G
rid56
.932
/40
Lega
cy K
eysp
an77
.426
/40
Th
e ta
ble
abov
e su
mm
ariz
es N
atio
nal G
rid’s
and
Key
Spa
n’s
com
petit
ive
posi
tioni
ng
rela
tive
to c
ompe
titor
s in
term
s of
pos
t-ret
irem
ent m
edic
al p
rogr
ams
B
ased
on
empl
oyer
val
ue, N
atio
nal G
rid’s
and
Key
Spa
n’s
plan
s ra
nk s
light
ly b
elow
av
erag
e
The
com
para
tor g
roup
incl
udes
:
Four
com
pani
es th
at o
ffer n
o po
st-r
etire
men
t med
ical
ben
efits
N
ine
com
pani
es th
at o
ffer r
etire
e-pa
y-al
l cov
erag
e
O
f com
pani
es th
at o
ffer a
nd s
ubsi
dize
cov
erag
e, N
atio
nal G
rid ra
nks
seco
nd to
last
Exhibit__(HRP-3) Schedule 3 Page 20 of 43
201
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m21
Post
-ret
irem
ent m
edic
al b
enef
its
Exhibit__(HRP-3) Schedule 3 Page 21 of 43
202
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m22
Post
-ret
irem
ent d
eath
N
atio
nal G
rid d
oes
not o
ffer p
ost-r
etire
men
t dea
th b
enef
its
23 c
ompe
titor
com
pani
es o
ffer p
ost-r
etire
men
t life
insu
ranc
e an
d A
D&
D b
enef
its. T
he p
lans
of t
wo
of
thes
e co
mpa
nies
are
gro
up u
nive
rsal
life
pla
ns; 1
00%
of c
osts
are
pai
d by
retir
ees
Exhibit__(HRP-3) Schedule 3 Page 22 of 43
203
Act
ive
Ben
efits
tow
ersw
atso
n.co
m23
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
Pre
sent
atio
n2
Exhibit__(HRP-3) Schedule 3 Page 23 of 43
204
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m24
Act
ive
med
ical
pla
n de
liver
y m
odel
s
Fo
r pur
pose
s of
the
BE
NV
AL®
, we
eval
uate
d on
ly th
e op
tion
with
hig
hest
en
rollm
ent
O
f the
com
petit
or c
ompa
nies
’ hig
hest
-enr
olle
d pl
an:
27
incl
ude
out-o
f-net
wor
k co
vera
ge; 2
4 of
thes
e pl
ans
are
PP
O/P
OS
pla
ns a
nd tw
o ar
e co
nsum
er-d
riven
opt
ions
11
incl
ude
in-n
etw
ork
cove
rage
onl
y; 1
0 ar
e H
MO
/EP
O p
lans
and
one
is a
con
sum
er-
driv
en o
ptio
n
Th
e hi
ghes
t-enr
olle
d pl
an fo
r Nat
iona
l Grid
’s n
onun
ion
popu
latio
n is
an
EP
O
Exhibit__(HRP-3) Schedule 3 Page 24 of 43
205
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m25
Act
ive
med
ical
ben
efits
com
paris
on
The
follo
win
g ta
ble
com
pare
s N
atio
nal G
rid’s
pla
n de
sign
rela
tive
to it
s pe
er g
roup
Ran
geAv
erag
eM
ode
In-N
etw
ork
Ann
ual D
educ
tible
- P
er P
erso
n$0
$0-$
1,80
0$5
1650
0A
nnua
l Ded
uctib
le -
Fam
ily M
axim
um$0
$0-$
3,60
0$1
,183
1,00
0A
nnua
l OO
P M
ax -
Per
Per
son
(Incl
udes
Ded
)$0
$0-$
6,81
1$2
,392
1,00
0A
nnua
l OO
P M
ax -
Fam
ily (I
nclu
des
Ded
)$0
$0-$
13,2
00$5
,316
3,00
0H
ospi
tal R
oom
and
Boa
rd -
Coi
nsur
ance
100%
80%
-100
%33
1%10
0%H
ospi
tal R
oom
and
Boa
rd -
Cop
ay$1
50/s
tay
$0-$
500
$46
$0E
mer
genc
y R
oom
- C
oins
uran
ce10
0%80
%-1
00%
92%
100%
Em
erge
ncy
Roo
m -
Cop
ay$1
00/v
isit
$0-$
150
$55
$0O
ffice
Vis
its -
Prim
ary
- Cop
ay$1
5/vis
it$0
-$40
$14
$0O
ffice
Vis
its -
Spe
cial
ist -
Cop
ay$2
0/vis
it$0
-$60
$20
$0P
resc
riptio
n D
rugs
- R
etai
l - G
ener
ic -
Coi
nsur
ance
100%
80%
-100
%94
%10
0%P
resc
riptio
n D
rugs
- R
etai
l - G
ener
ic -
Cop
ay$1
0$5
-$50
$12
$10
Pre
scrip
tion
Dru
gs -
Ret
ail -
Bra
nd -
Form
ular
y - C
oins
uran
ce10
0%70
%-1
00%
86%
100%
Pre
scrip
tion
Dru
gs -
Ret
ail -
Bra
nd -
Form
ular
y - C
opay
$25
$10-
$125
$38
$20
Pre
scrip
tion
Dru
gs -
Ret
ail -
Bra
nd -
Non
-For
mul
ary
- Coi
nsur
ance
100%
45%
-100
%78
%10
0%P
resc
riptio
n D
rugs
- R
etai
l - B
rand
- N
on-F
orm
ular
y - C
opay
$40
$20-
$225
$62
$40
Men
tal H
ealth
- O
utpa
tient
- C
opay
$15/
visit
$10-
$60
$23
$25
Mon
thly
Em
ploy
ee C
ontri
butio
ns -
Em
ploy
ee O
nly
$140
$0-$
164.
93$7
9N
/AM
onth
ly E
mpl
oyee
Con
tribu
tions
- Fa
mily
$390
$111
.56-
$463
.11
$275
N/A
Out
-of-N
etw
ork
Ann
ual D
educ
tible
- P
er P
erso
nN
/A$2
00-$
3,60
0$9
37$5
00A
nnua
l Ded
uctib
le -
Fam
ily M
axim
umN
/A$4
00-$
7,20
0$2
,352
$1,0
00A
nnua
l OO
P M
ax -
Per
Per
son
(Incl
udes
Ded
)N
/A$1
,000
-$13
,200
$5,0
915,
000
Ann
ual O
OP
Max
- Fa
mily
(Inc
lude
s D
ed)
N/A
$0-$
26,4
00$1
1,62
3$6
,000
Natio
nal G
ridCo
mpa
rato
r Gro
up
Exhibit__(HRP-3) Schedule 3 Page 25 of 43
206
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m26
Act
ive
med
ical
sco
re a
nd ra
nk
Act
ive
Med
ical
Sco
re a
nd R
ank
Scor
eRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid97
.422
/40
Lega
cy K
eysp
an97
.422
/40
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
107.
112
/40
Lega
cy K
eysp
an10
7.1
12/4
0
N
atio
nal G
rid ra
nks
22nd
and
12th
, res
pect
ivel
y, in
act
ive
med
ical
em
ploy
er
valu
e an
d to
tal p
lan
valu
e
Nat
iona
l Grid
’s e
mpl
oyer
val
ue is
low
er th
an to
tal v
alue
bec
ause
of h
ighe
r-tha
n-av
erag
e em
ploy
ee c
ontri
butio
ns
Exhibit__(HRP-3) Schedule 3 Page 26 of 43
207
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m27
Act
ive
med
ical
ben
efits
W
ith re
spec
t to
empl
oyer
va
lue:
Th
e to
p th
ree
plan
s fe
atur
e 10
0% in
-net
wor
k co
vera
ge w
ith m
inim
al
mem
ber d
educ
tible
s an
d lo
w e
mpl
oyee
cos
t sha
re
Th
e lo
wes
t pla
n fe
atur
es
90%
coi
nsur
ance
with
a
$500
in-n
etw
ork
indi
vidu
al d
educ
tible
Exhibit__(HRP-3) Schedule 3 Page 27 of 43
208
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m28
Act
ive
dent
al b
enef
its c
ompa
rison
Th
e fo
llow
ing
tabl
e co
mpa
res
Nat
iona
l Grid
’s p
lan
desi
gn re
lativ
e to
thei
r co
mpe
titor
s
Rang
eAv
erag
eM
ode
In-N
etw
ork
Ann
ual D
educ
tible
- P
er P
erso
n$5
0$2
5-$1
25$4
7$5
0A
nnua
l Ded
uctib
le -
Fam
ily$1
50$5
0-$1
50$1
15$1
50A
nnua
l Max
imum
$2,5
00(e
xclu
des
Orth
odon
tia)
$100
0-$3
000
$1,8
26$1
,500
Pre
vent
ive/T
ype
I (C
lean
ings
)10
0%80
%-9
0%99
%10
0%B
asic
/Typ
e II
(Fill
ings
)80
%70
%-1
00%
81%
80%
Maj
or/T
ype
III (C
row
ns)
50%
50%
-100
%59
%50
%O
rthod
ontia
- C
over
age
100%
50%
-100
%56
%50
%O
rthod
ontia
- M
axim
um$2
,000
per
life
time
$750
-$30
00$1
,816
$2,0
00M
onth
ly E
mpl
oyee
Con
tribu
tions
- E
mpl
oyee
Onl
y$1
6$4
-$46
.99
$14
Non
eM
onth
ly E
mpl
oyee
Con
tribu
tions
- Fa
mily
$45
$14.
1-$1
47.3
2$4
6N
one
Out
-of-N
etw
ork
Ann
ual D
educ
tible
- O
ut-O
f-Net
wor
k - P
er P
erso
nN
/A$2
5-$2
50$6
2$5
0A
nnua
l Ded
uctib
le -
Out
-Of-N
etw
ork
- Fam
ilyN
/A$5
0-$1
50$1
28$1
50A
nnua
l Max
imum
- O
ut-O
f-Net
wor
kN
/A$1
500-
$300
0$1
,827
$1,5
00
Natio
nal G
rid
Com
para
tor G
roup
Exhibit__(HRP-3) Schedule 3 Page 28 of 43
209
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m29
Act
ive
dent
al b
enef
its s
core
and
rank
Dent
al S
core
and
Ran
kSc
ore
Rank
Empl
oyer
Val
ue
Lega
cy N
atio
nal G
rid94
.525
/40
Lega
cy K
eysp
an94
.525
/40
Tota
l Val
ue
Lega
cy N
atio
nal G
rid10
1.8
16/4
0
Lega
cy K
eysp
an10
1.8
16/4
0
O
ne c
ompa
ny o
ffers
an
empl
oyee
-pay
-all
prog
ram
Th
e pl
ans
of e
ight
com
pani
es, i
nclu
ding
the
high
est r
anke
d co
mpa
ny, h
ave
no
mem
ber d
educ
tible
Exhibit__(HRP-3) Schedule 3 Page 29 of 43
210
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m30
Act
ive
dent
al b
enef
its
Exhibit__(HRP-3) Schedule 3 Page 30 of 43
211
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m31
Act
ive
life
insu
ranc
e/A
D&
D c
ompa
rison
Rang
eAv
erag
eM
ode
Bas
icB
asic
Ben
efit
Am
ount
1 x
pay
1 x
pay-
8 x
pay
N/A
1xpa
yB
enef
it M
ax -
Bas
ic$1
,500
,000
$10,
000-
Unl
imite
d$1
,192
,258
$1
,000
,000
S
uppl
emen
tal
Hig
hest
Ben
efit
Leve
l5
x pa
y3
x pa
y-9
x pa
yN
/A8
x pa
yD
epen
dent
Spo
use
- Hig
hest
Ben
efit
Leve
l$1
00,0
00$1
0,00
0-$5
00,0
00$1
27,1
67
$250
,000
C
hild
- H
ighe
st B
enef
it Le
vel
$10,
000
$2,5
00-$
30,0
00$1
2,15
5 $1
0,00
0 A
D&D
Par
ticip
atio
n R
equi
rem
ents
Non
eN
one
- 1 M
onth
of
Ser
vice
N/A
Non
e
Mon
thly
Em
ploy
ee C
ontri
butio
nsN
one
N/A
N/A
Non
eB
enef
it A
mou
nt2
x pa
y1
x pa
y-6
x pa
yN
/A1
x pa
yB
enef
it M
axim
um$6
00,0
00
$50,
000-
Unl
imite
d$1
,153
,478
$1
,000
,000
Natio
nal G
ridCo
mpa
rato
r G
roup
Tw
elve
com
petit
ors
do n
ot o
ffer s
uppl
emen
tal e
mpl
oyee
life
insu
ranc
e. R
ange
s, a
vera
ges
and
mod
es
abov
e re
flect
sup
plem
enta
l pla
ns in
pla
ce
Nat
iona
l Grid
’s b
asic
life
am
ount
is in
line
with
com
petit
ive
norm
s; it
s ba
sic
life
max
imum
is a
bove
the
aver
age
of $
1,00
0,00
0
Nat
iona
l Grid
’s s
uppl
emen
tal l
ife b
enef
it of
1 to
5x
pay
in m
ultip
les
of 1
x pa
y w
ith a
max
imum
of
$1,0
00,0
00 is
bel
ow th
e co
mpe
titiv
e m
ode
of 1
to 8
x pa
y in
mul
tiple
s of
1x
pay
M
ost c
ompa
nies
hav
e a
supp
lem
enta
l max
imum
of $
2,00
0,00
0; th
e av
erag
e is
abo
ut $
2,40
0,00
0
The
high
est s
uppl
emen
tal m
axim
um is
$10
,000
,000
S
pous
e lif
e be
nefit
s ar
e be
low
com
petit
ive
norm
s as
oth
er c
ompa
nies
offe
r spo
use
bene
fits
in e
xces
s of
$10
0,00
0 (N
atio
nal G
rid’s
hig
hest
leve
l); th
e hi
ghes
t chi
ld li
fe o
ptio
n is
in li
ne w
ith n
orm
s
Nat
iona
l Grid
’s A
D&
D m
axim
um is
low
er th
an th
e av
erag
e of
ove
r $1,
000,
000
Exhibit__(HRP-3) Schedule 3 Page 31 of 43
212
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m32
Act
ive
life/
AD
&D
insu
ranc
e sc
ore
and
rank
Life
Insu
ranc
e/AD
&D
- Act
ive
Sco
re a
nd R
ank
Scor
eR
ank
Empl
oyer
Val
ue
Lega
cy N
atio
nal G
rid98
.114
/40
Lega
cy K
eysp
an98
.114
/40
Tota
l Val
ue
Lega
cy N
atio
nal G
rid10
3.4
15/4
0
Lega
cy K
eysp
an10
3.4
15/4
0
Th
e fo
llow
ing
tabl
e illu
stra
tes
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s co
mpe
titiv
e po
sitio
ning
re
lativ
e to
thei
r pee
r gro
up in
term
s of
life
insu
ranc
e an
d A
D&
D p
rogr
ams
E
mpl
oyer
val
ues
are
driv
en b
y th
e op
tiona
l ben
efits
(e.g
., op
tiona
l life
, spo
use
and
depe
nden
t life
) an
d th
e as
soci
ated
em
ploy
ee c
ontri
butio
n
Exhibit__(HRP-3) Schedule 3 Page 32 of 43
213
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m33
Act
ive
life
insu
ranc
e an
d A
D&
D b
enef
it
Exhibit__(HRP-3) Schedule 3 Page 33 of 43
214
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m34
Shor
t-ter
m d
isab
ility
com
paris
on
Th
e ta
ble
abov
e co
mpa
res
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s sh
ort-t
erm
dis
abili
ty
prog
ram
with
thos
e of
com
petit
or c
ompa
nies
N
atio
nal G
rid’s
and
Key
Spa
n’s
plan
gra
nts
two
wee
ks o
f sic
k pa
y at
100
% w
ith
two
year
s of
ser
vice
, and
an
addi
tiona
l one
wee
k fo
r eac
h ye
ar o
f ser
vice
th
erea
fter
Ran
geA
vera
geM
ode
Sic
k P
ay C
omm
ence
men
t:1s
t day
of d
isab
ility
1st d
ay o
f dis
abili
ty1s
t day
of d
isab
ility
1st d
ay o
f dis
abili
ty
Sic
k P
ay @
100
% (N
umbe
r of W
eeks
):<1
Yea
r of S
ervic
e1
10.
6-4
1.5
11
Yea
rs o
f Ser
vice
11
0.6-
91.
91
5 Y
ears
of S
ervic
e5
50.
6-26
3.1
110
Yea
rs o
f Ser
vice
1010
0.6-
264.
31
15 Y
ears
of S
ervic
e15
150.
6-26
4.5
120
Yea
rs o
f Ser
vice
2020
0.6-
264.
71
Sal
ary
Con
tinua
nce
-%
of P
ay70
%50
%60
%-1
00%
97%
100%
Dur
atio
n (N
umbe
r of W
eeks
):<1
Yea
r of S
ervic
e52
130-
5212
.926
1 Y
ears
of S
ervic
e52
130-
5214
.126
5 Y
ears
of S
ervic
e52
130-
5218
.926
10 Y
ears
of S
ervic
e52
134-
5222
.026
15 Y
ears
of S
ervic
e52
134-
5223
.226
20 Y
ears
of S
ervic
e52
134-
5223
.926
25 Y
ears
of S
ervic
e52
134-
5224
.026
Lega
cyN
atio
nal G
rid
Lega
cy K
eyS
pan
Com
para
tor
Gro
up
Exhibit__(HRP-3) Schedule 3 Page 34 of 43
215
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m
Long
-term
dis
abili
ty c
ompa
rison
Rang
eA
vera
geM
ode
Def
initi
on o
f Dis
abili
tyO
wn
occ
first
24
mon
ths;
any
occ
afte
r 24
mon
ths
Ow
n oc
c fir
st 2
4 m
onth
s; a
ny o
cc a
fter
24 m
onth
sN
/AN
/AO
wn
occ
first
24
mon
ths;
any
occ
af
ter 2
4 m
onth
sC
over
ed P
ayB
ase
Sal
ary
Bas
e S
alar
yN
/AN
/AB
ase
Sal
ary
Com
men
cem
ent
Afte
r exh
aust
ion
of
STD
ben
efits
Late
r of 9
0 ca
lend
ar
days
or e
xhau
stio
n of
S
TD
3 m
onth
s - 1
2 m
onth
s6
mon
ths
6 m
onth
s
Ben
efit
- Am
ount
60%
60%
50%
-70%
59%
60%
Ben
efit
- Offs
ets
SS
Prim
ary
SS
Fam
ilyN
/AN
/AS
S F
amily
, P
ensi
onM
axim
um B
enef
it (A
fter O
ffset
s)70
% o
f pay
$15,
000
N/A
N/A
Unl
imite
d
Com
para
tor G
roup
Lega
cy
Natio
nal G
rid
Lega
cy K
eySp
an
Th
e ta
ble
sum
mar
izes
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s co
mpe
titiv
e po
sitio
ning
rela
tive
to th
eir p
eer g
roup
in te
rms
of L
TD p
rogr
ams
To
tal v
alue
resu
lts fo
r LTD
are
larg
ely
driv
en b
y th
e be
nefit
co
mm
ence
men
t dat
e, d
urat
ion
of th
e be
nefit
, the
per
cent
of p
ay c
over
ed,
and
max
imum
ben
efit
B
oth
Nat
iona
l Grid
and
Key
Spa
nof
fer a
bas
ic b
enef
it of
60%
of p
ay, w
hich
is in
lin
e w
ith c
ompe
titiv
e no
rms
Fo
urte
en c
ompe
titor
s re
quire
em
ploy
ee c
ontri
butio
ns fo
r LTD
35
Exhibit__(HRP-3) Schedule 3 Page 35 of 43
216
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m36
Shor
t-ter
m d
isab
ility
and
long
-term
dis
abili
tysc
ore
and
rank
Sho
rt Te
rm a
nd L
ong
Term
Dis
abili
ty S
core
and
Ran
kS
core
Ran
kEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid10
5.9
16/4
0
Lega
cy K
eysp
an10
1.0
24/4
0
Tota
l Val
ue
Lega
cy N
atio
nal G
rid99
.326
/40
Lega
cy K
eysp
an94
.734
/40
B
ecau
se d
iffer
ing
elim
inat
ion
perio
ds c
an s
kew
resu
lts w
hen
look
ing
at S
TD a
nd L
TD
bene
fits
indi
vidu
ally
, it i
s al
so im
porta
nt to
look
at t
he e
ntire
dis
abilit
y co
ntin
uum
W
hen
STD
and
LTD
are
ass
esse
d in
com
bina
tion,
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s pl
an
are
mor
e cl
osel
y al
igne
d
Exhibit__(HRP-3) Schedule 3 Page 36 of 43
217
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m37
Shor
t-ter
m d
isab
ility
and
long
-term
dis
abili
ty
Exhibit__(HRP-3) Schedule 3 Page 37 of 43
218
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m38
Vaca
tion
and
holid
ay b
enef
its c
ompa
rison
Th
e fo
llow
ing
tabl
e co
mpa
res
Nat
iona
l Grid
’s a
nd K
eyS
pan’
s pl
an d
esig
n re
lativ
e to
thei
r pee
r gro
up p
lan
desi
gns
O
vera
ll va
catio
n da
ys p
er y
ear o
f ser
vice
are
in-li
ne/s
light
ly m
ore
gene
rous
th
an th
e co
mpe
titor
ave
rage
Rang
eAv
erag
eM
ode
Num
ber o
f Day
sV
acat
ion
At H
ire15
0 - 2
7.5
1215
Vac
atio
n W
ith 1
Yea
r of S
ervic
e15
5 - 2
7.5
1310
Vac
atio
n W
ith 3
Yea
rs o
f Ser
vice
1510
- 27
.513
15V
acat
ion
With
7 Y
ears
of S
ervic
e15
10 -
27.5
1615
Vac
atio
n W
ith 1
5 Y
ears
of S
ervic
e20
15 -
27.5
2020
Vac
atio
n W
ith 2
5 Y
ears
of S
ervic
e25
20 -
3025
25V
acat
ion
With
35
Yea
rs o
f Ser
vice
2520
- 30
2625
Em
ploy
er S
ched
uled
Hol
iday
s10
6 - 1
29
9E
mpl
oyee
Sch
edul
ed H
olid
ays
20
- 73
3
Natio
nal G
ridC
ompa
rato
r Gro
up
Exhibit__(HRP-3) Schedule 3 Page 38 of 43
219
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m39
Vaca
tion
and
holid
ay s
core
and
rank
Vac
atio
n an
d Ho
liday
Sco
re a
nd R
ank
Scor
eRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid10
1.5
15/4
0
Lega
cy K
eysp
an10
1.5
15/4
0
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
101.
515
/40
Lega
cy K
eysp
an10
1.5
15/4
0
Exhibit__(HRP-3) Schedule 3 Page 39 of 43
220
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m40
Vaca
tion
and
holid
ay s
core
and
rank
Exhibit__(HRP-3) Schedule 3 Page 40 of 43
221
Sum
mar
y
tow
ersw
atso
n.co
m41
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
Exhibit__(HRP-3) Schedule 3 Page 41 of 43
222
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m42
Scor
e su
mm
ary
A
s no
ted
thro
ugho
ut th
is d
ocum
ent,
ther
e ar
e so
me
bene
fit p
rovi
sion
s th
at a
re m
ore
gene
rous
than
the
com
petit
or g
roup
, and
oth
ers
that
are
less
gen
erou
s th
an th
e co
mpe
titor
gro
up, w
hich
ulti
mat
ely
cont
ribut
e to
the
over
all E
ntire
Ben
efit
Pro
gram
sco
re
Fr
om a
n em
ploy
er v
alue
per
spec
tive,
Nat
iona
l Grid
is in
line
with
the
mar
ket
Pro
visi
onEm
ploy
er V
alue
Tota
l Val
ueEm
ploy
er V
alue
Tota
l Val
ueEn
tire
Bene
fit P
rogr
am10
0.6
108.
210
0.2
108.
9D
efin
ed B
enef
it0.
00.
00.
00.
0
Def
ined
Con
tribu
tion
162.
113
5.1
162.
113
5.1
Def
ined
Ben
efit
+ D
efin
ed c
ontri
butio
n10
4.4
105.
910
4.4
105.
9
Pos
t-ret
irem
ent M
edic
al22
.056
.921
.977
.4
Pos
t-ret
irem
ent D
eath
0.0
0.0
0.0
0.0
Ret
irem
ent E
vent
s*10
2.4
115.
510
2.4
118.
0
Act
ive M
edic
al97
.410
7.1
97.4
107.
1
Den
tal
94.5
101.
894
.510
1.8
Life
Insu
ranc
e/A
D&
D98
.110
3.4
98.1
103.
4
STD
106.
310
2.5
98.2
94.7
LTD
104.
187
.711
2.3
94.6
Vac
atio
n +
Hol
iday
101.
510
1.5
101.
510
1.5
*Incl
udin
g st
ock
purc
hase
pla
n
Lega
cy N
atio
nal G
rid
Lega
cy K
eysp
an
Exhibit__(HRP-3) Schedule 3 Page 42 of 43
223
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m434343
BEN
VAL®
valu
atio
n m
etho
dolo
gyR
elat
ive
valu
es a
re d
eter
min
ed b
ased
on
a re
pres
enta
tive
empl
oyee
gro
up a
nd a
sta
ndar
dize
d se
t of
valu
atio
n as
sum
ptio
ns/m
etho
ds; r
esul
ts a
re n
ot in
tend
ed to
repr
esen
t act
ual p
rogr
am c
osts
.
P
lan
prov
isio
ns v
alue
d ar
e th
ose
appl
icab
le to
new
ly h
ired
sala
ried
empl
oyee
s; b
enef
its a
vaila
ble
only
to g
rand
fath
ered
gro
ups
of e
mpl
oyee
s ar
e no
t ref
lect
ed.
S
tand
ard
popu
latio
nA
vera
ge a
ge: 4
4 ye
ars
Ave
rage
ser
vice
: 13
year
sA
vera
ge b
ase
sala
ry: $
76,1
21A
vera
ge to
tal c
ompe
nsat
ion:
$84
,389
K
ey e
cono
mic
ass
umpt
ions
Inve
stm
ent r
etur
n as
sum
ptio
n/di
scou
nt ra
te: 7
%S
alar
y in
crea
se ra
te: 4
%
Infla
tion:
2.5
%O
ne-y
ear T
reas
ury
bond
yie
ld: 4
.4%
30-y
ear T
reas
ury
bond
yie
ld: 5
.5%
Hea
lth c
are
cost
tren
d: 8
% g
rade
d to
5%
ove
r six
yea
rs
Exhibit__(HRP-3) Schedule 3 Page 43 of 43
224
E
xhibit __ (HR
P-4)
Testimony of The Human Resources Panel
Exhibit __ (HRP-4)
Market Merit Increases and 10 Year Wage Increases History
225
Testimony of The Human Resources Panel
Exhibit __ (HRP-4)
Schedule 1
226
©2
01
2 T
ow
ers
Wat
son
. All
rig
hts
re
serv
ed
. Pro
prie
tary
an
d C
on
fide
ntia
l. F
or
To
we
rs W
atso
n a
nd
To
we
rs W
atso
n c
lien
t u
se o
nly
.to
wer
swat
son.
com
Mar
ket M
erit
Incr
ease
s
Gen
eral
indu
stry
sal
ary
grow
th re
mai
ns re
lativ
ely
flat
P =
Proj
ecte
d; F
= F
orec
ast.
* Dat
a re
pres
ents
med
ian
mer
it in
crea
ses.
Incl
udes
par
ticip
ants
pro
vidi
ng n
o m
erit
incr
ease
s.So
urce
: Tow
ers
Wat
son
Dat
a Se
rvic
es.
Yea
rU
.S. M
erit
Bud
get
Incr
ease
s*
Exe
cuti
veM
anag
emen
tE
xem
ptN
on-e
xem
pt
Sala
ried
Non
-exe
mpt
H
ourl
y
2008
3.7%
3.5%
3.5%
3.5%
3.4%
2009
3.3%
2.9%
2.8%
2.8%
2.8%
2010
3.0%
2.8%
2.8%
2.7%
2.7%
2011
P3.
0%3.
0%3.
0%2.
9%2.
8%20
12F
3.0%
3.0%
3.0%
3.0%
3.0%
Exh
ibit_
_(H
RP
-4)
Sch
edu
le 1
Pag
e 1
of 1
Nat
ion
al G
rid U
SA
Exhibit__(HRP-4) Schedule 1 Page 1 of 1
227
Testimony of The Human Resources Panel
Exhibit __ (HRP-4)
Schedule 2
228
National Grid USA Exhibit__ (HRP-4) Schedule 2
Page 1 of 1
National Grid Union and Non-Union Wage Increase History (2002-2011)
Non-Union Union Merit Prom/Equity Total Gen Wage Increase* 2002 3.20% 0.80% 4.00% 3.25% 2003 0.00% 2.00% 2.00% 3.75% 2004 2.60% 0.70% 3.30% 2.50% 2005 3.50% 0.35% 3.85% 0.00% 2006 3.00% 0.40% 3.40% 3.25% 2007 3.15% 0.50% 3.65% 3.00% 2008 3.40% 0.50% 3.90% 3.00% 2009 0.00% 1.50% 1.50% 3.00% 2010 2.00% 0.35% 2.35% 3.00% 2011 3.00% 0.19% 3.19% 2.50% * Excludes progression step increases which are similar to non-union job family promotions
229
Exhibit __ (H
RP
-5)
Testimony of The Human Resources Panel
Exhibit __ (HRP-5)
Niagara Mohawk’s Compensation and Benefits for Union
230
Testimony of The Human Resources Panel
Exhibit __ (HRP-5)
Schedule 1
231
Nat
iona
l Grid
US
AE
xhib
it _
_ (H
RP
-5)
Sch
edul
e 1
Pag
e 1
of 1
Nat
iona
l Grid
USA
Uni
on W
age
Com
paris
on
Sala
ryTa
rget
Tot
al C
ash
Com
pens
atio
nSa
lary
Targ
et T
otal
Cas
h C
ompe
nsat
ion
Sala
ryTa
rget
Tot
al C
ash
Com
pens
atio
n
Cab
le S
plic
er$3
5.13
$36.
36$3
6.05
$38.
6497
%94
%
Cus
tom
er S
ervi
ce R
ep$2
5.73
$26.
63$2
6.26
$27.
8298
%96
%
Dis
patc
her
$39.
87$4
1.27
$40.
80$4
4.23
98%
93%
Line
Mec
hani
c$3
7.01
$38.
31$3
8.89
$40.
4395
%95
%
Flee
t Tec
hnic
ian
$33.
76$3
4.94
$38.
04$3
8.10
89%
92%
Rel
ay T
este
r$4
2.16
$43.
64$4
1.89
$41.
9610
1%10
4%
Stoc
k H
andl
er$3
8.62
$39.
97$3
8.68
$40.
6610
0%98
%
Ave
rage
97%
96%
Not
es:
(2)
Tar
get i
ncen
tive
for
Nat
iona
l Grid
uni
on e
mpl
oyee
s is
3.5
%
Posi
tion
U.S
. Dep
artm
ent o
f Lab
or, B
urea
u of
Lab
or S
tatis
tics,
"Cur
rent
Pop
ulat
ion
Sur
vey:
Med
ian
wee
kly
earn
ings
of f
ull-t
ime
wag
e an
d sa
lary
wor
kers
by
unio
n af
filia
tion,
occ
upat
ion,
and
indu
stry
." La
st m
odifi
ed d
ate:
Mar
ch 1
, 201
2, a
vaila
ble
at [h
ttp://
ww
w.b
ls.g
ov/c
ps/c
psaa
t43.
htm
].
Nat
iona
l Grid
Loc
al 9
7 H
ourly
Rat
eM
arke
t Med
ian
Com
pens
atio
n H
ourly
Rat
e1N
atio
nal G
rid C
ompe
nsat
ion
as
Perc
ent o
f Mar
ket M
edia
n
(1)
Bec
ause
mar
ket d
ata
repo
rted
doe
s no
t dis
tingu
ish
betw
een
unio
n an
d no
n-un
ion
wor
kers
, the
hou
rly r
ate
refle
cts
a 10
% d
iffe
rent
ial t
o ac
coun
t for
uni
on
mem
bers
hip
with
in th
e U
tiliti
es In
dust
ry. T
his
diffe
rent
ial w
as d
eter
min
ed b
ased
on
data
from
the
Bur
eau
of L
abor
Sta
tistic
s m
ont
hly
Cur
rent
Pop
ulat
ion
Sur
vey:
Exhibit__(HRP-5) Schedule 1 Page 1 of 1
232
Testimony of The Human Resources Panel
Exhibit __ (HRP-5)
Schedule 2
233
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed.
Nat
iona
l Grid
BE
NV
AL
Ana
lysi
s fo
r Uni
on B
enef
its –
Lega
cy N
atio
nal G
rid N
ew Y
ork
Uni
on (L
ocal
97)
APR
IL 2
, 201
2
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
1 of
46
Exhibit__(HRP-5) Schedule 2 Page 1 of 46
234
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m2
Tabl
e of
con
tent
s
O
verv
iew
of C
ompe
titiv
e A
sses
smen
t
E
ntire
Ben
efit
Pro
gram
R
etire
men
t Ben
efits
A
ctiv
e B
enef
its
S
umm
ary
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
2 of
46
Exhibit__(HRP-5) Schedule 2 Page 2 of 46
235
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m
Ove
rvie
w o
f com
petit
ive
asse
ssm
ent
To
wer
s W
atso
n m
aint
ains
a d
atab
ase
of b
enef
it pr
ovis
ions
for o
ver 1
,300
com
pani
es
BE
NV
AL
dete
rmin
es a
val
ue fo
r the
se b
enef
its b
y ap
plyi
ng a
sta
ndar
d m
etho
dolo
gy to
a
stan
dard
em
ploy
ee p
opul
atio
n
Ben
efit
prog
ram
s ar
e:
Com
pare
d on
a re
lativ
e va
lue
basi
s be
twee
n em
ploy
ers
—a
scor
e of
100
repr
esen
ts th
e av
erag
e va
lue
for t
he c
ompa
rato
r gro
up
Sco
res
are
dete
rmin
ed o
n a
dolla
r val
ue b
asis
rela
tive
to th
e av
erag
e va
lue
Th
is re
port
incl
udes
the
follo
win
g:
List
of p
eer c
ompa
nies
incl
uded
in th
e st
udy
E
xecu
tive
sum
mar
y of
stu
dy re
sults
O
verv
iew
of t
he b
enef
its e
nviro
nmen
t
Rel
ativ
e va
lue
com
paris
on fo
r the
tota
l pro
gram
and
indi
vidu
al b
enef
it pr
ogra
ms
B
reak
dow
n of
ben
efit
valu
es b
y co
mpo
nent
pro
gram
s
Th
roug
hout
this
doc
umen
t, “to
tal v
alue
” ref
ers
to th
e po
sitio
ning
of t
he b
enef
it pr
ogra
ms
incl
udin
g th
e va
lue
of e
mpl
oyee
con
tribu
tions
; “em
ploy
er v
alue
” ref
ers
to th
e va
lue
afte
r em
ploy
ee c
ontri
butio
ns
have
bee
n de
duct
ed
Th
e E
ntire
Ben
efit
Pro
gram
tota
l and
em
ploy
er v
alue
s ar
e pr
imar
ily d
riven
by
the
valu
e of
the
retir
emen
t pla
ns, a
ctiv
e an
d po
st-r
etire
men
t med
ical
pla
ns, a
nd v
acat
ion
and
holid
ay p
rogr
ams,
whi
ch
com
pris
e th
e va
st m
ajor
ity o
f the
pro
gram
val
ues
3
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
3 of
46
Exhibit__(HRP-5) Schedule 2 Page 3 of 46
236
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m4
Ove
rvie
w o
f com
petit
ive
asse
ssm
ent
To
wer
s W
atso
n co
nduc
ted
a be
nefit
pro
gram
ben
chm
arki
ng a
naly
sis
com
parin
g be
nefit
leve
ls fo
r the
Le
gacy
Nat
iona
l Grid
New
Yor
k U
nion
(NG
NY
U)
rela
tive
to th
e un
ion
bene
fit p
rogr
ams
for 2
1 pe
er
orga
niza
tions
Th
roug
hout
this
doc
umen
t, w
e ha
ve in
clud
ed p
lan
sum
mar
y ch
arts
for e
ach
bene
fit
In th
e R
etire
men
t sec
tion,
we
prov
ide
plan
sum
mar
ies
for e
ach
bene
fit p
rogr
am fo
r the
Nat
iona
l Grid
N
ew Y
ork
Uni
on
In th
e A
ctiv
e se
ctio
n, w
e pr
ovid
e pl
an s
umm
arie
s fo
r eac
h be
nefit
pro
gram
and
the
Nat
iona
l Grid
New
Yo
rk U
nion
, as
wel
l as
rang
es (t
he lo
wes
t to
high
est v
alue
for t
he g
roup
of v
alue
s), a
vera
ges
(the
mea
n of
a g
roup
of v
alue
s), a
nd m
odes
(the
mos
t fre
quen
t val
ue in
a g
roup
of v
alue
s), w
here
po
ssib
le fo
r the
com
petit
or g
roup
; whe
re a
vera
ges
coul
d no
t be
calc
ulat
ed, w
e ca
lcul
ated
a ra
nge
and/
or m
ode
only
A
mer
en C
orpo
ratio
n
MD
U R
esou
rces
Gro
up, I
nc.
A
mer
ican
Ele
ctric
Pow
er S
yste
m
Nor
thea
st U
tiliti
es S
ervic
e C
ompa
ny
Cen
terP
oint
Ene
rgy,
Inc.
N
STA
R
Con
solid
ated
Edi
son
Com
pany
of N
ew Y
ork,
Inc.
N
STA
R -
Gas
Uni
on
C
onst
ella
tion
Ene
rgy
Gro
up, I
nc. -
NM
P U
nion
ON
EO
K, I
nc.
D
TE E
nerg
y - U
nion
Pac
ific
Gas
and
Ele
ctric
Com
pany
D
uke
Ene
rgy
Cor
pora
tion
P
PL
E
nerg
y Fu
ture
Hol
ding
s C
orp.
P
rogr
ess
Ene
rgy,
Inc.
E
nter
gy C
orpo
ratio
n
Pub
lic S
ervic
e E
nter
pris
e G
roup
E
xelo
n W
est
S
outh
ern
Cal
iforn
ia E
diso
n
Inte
grys
Ene
rgy
Gro
up, I
nc. -
PE
C U
nion
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
4 of
46
Exhibit__(HRP-5) Schedule 2 Page 4 of 46
237
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m5
Entir
e be
nefit
pro
gram
sco
re a
nd ra
nk
Entir
e Be
nefit
Pro
gram
Sco
re a
nd R
ank
Scor
eRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid N
ew Y
ork
Uni
on97
.114
/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
102.
68/
22
Th
e ta
ble
abov
e su
mm
ariz
es L
egac
y N
atio
nal G
rid N
ew Y
ork
Uni
on’s
pl
an v
alue
s
Tota
l val
ue re
flect
s th
e va
lue
incl
udin
g em
ploy
ee c
ontri
butio
ns; e
mpl
oyer
va
lue
repr
esen
ts v
alue
net
of e
mpl
oyee
con
tribu
tions
In
term
s of
em
ploy
er v
alue
, New
Yor
k U
nion
’s b
enef
its a
re, o
vera
ll,
belo
w th
e av
erag
e of
its
peer
gro
up
The
low
er e
mpl
oyer
val
ue in
dica
tes
rela
tivel
y hi
gher
New
Yor
k U
nion
em
ploy
ee c
ontri
butio
ns v
s. c
ompa
rativ
e no
rms
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
5 of
46
Exhibit__(HRP-5) Schedule 2 Page 5 of 46
238
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m6
Entir
e be
nefit
pro
gram
Th
e ch
arts
abo
ve fu
rther
illu
stra
te h
ow th
e N
ew Y
ork
Uni
on’s
pla
ns c
ompa
re to
pe
ers,
in te
rms
of b
oth
tota
l val
ue a
nd e
mpl
oyer
val
ue (i
.e.,
net o
f em
ploy
ee
cont
ribut
ions
)
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
6 of
46
Exhibit__(HRP-5) Schedule 2 Page 6 of 46
239
Ret
irem
ent B
enef
its
tow
ersw
atso
n.co
m7
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
V:\N
atio
nal G
rid U
SA
Inc
-111
574\
12\H
GB
\Ben
val\2
012
BE
NV
AL
Uni
on B
enef
its -
NY
Uni
on.p
pt
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
7 of
46
Exhibit__(HRP-5) Schedule 2 Page 7 of 46
240
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m
All
retir
emen
t eve
nts
excl
udin
g st
ock
purc
hase
plan
sco
re a
nd ra
nk
Ret
irem
ent e
vent
s re
fer t
o th
e va
rious
ben
efits
that
bec
ome
avai
labl
e up
on a
n em
ploy
ee’s
retir
emen
t. Th
is w
ould
enc
ompa
ss d
efin
ed b
enef
it/de
fined
con
tribu
tion
bene
fits,
pos
t-ret
irem
ent m
edic
al a
nd/o
r den
tal b
enef
its a
nd p
ost-r
etire
men
t life
in
sura
nce/
AD
&D
cov
erag
e. O
ther
long
-term
ince
ntiv
e pr
ogra
ms
such
em
ploy
ee
stoc
k pu
rcha
se p
lans
and
pro
fit-s
harin
g pl
ans
wou
ld fa
ll in
this
cat
egor
y as
wel
l
The
New
Yor
k U
nion
’s p
lans
rank
low
rela
tive
to p
eers
in te
rms
of b
oth
empl
oyer
an
d to
tal v
alue
8
Retir
emen
t Eve
nt S
core
and
Ran
k - e
xclu
ding
Sto
ck P
urch
ase
Scor
eRa
nkEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid N
ew Y
ork
Uni
on71
.819
/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
83.7
19/2
2
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
8 of
46
Exhibit__(HRP-5) Schedule 2 Page 8 of 46
241
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m9
All
retir
emen
t eve
nts
excl
udin
g st
ock
purc
hase
pla
n
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
9 of
46
Exhibit__(HRP-5) Schedule 2 Page 9 of 46
242
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m10
All
retir
emen
t eve
nts
incl
udin
g st
ock
purc
hase
plan
sco
re a
nd ra
nk
W
hen
stoc
k pu
rcha
se is
add
ed, N
ew Y
ork
Uni
on’s
val
ues
incr
ease
. How
ever
, its
rela
tive
rank
with
resp
ect t
o em
ploy
er v
alue
rem
ains
low
Retir
emen
t Eve
nt S
core
and
Ran
k - i
nclu
ding
Sto
ck P
urch
ase
Sco
reR
ank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
75.8
18/2
2
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
98.3
10/2
2
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
10 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 10 of 46
243
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m11
All
retir
emen
t eve
nt in
clud
ing
stoc
k pu
rcha
se
Rel
ativ
e ra
nkin
gs c
hang
e w
hen
the
Sto
ck P
urch
ase
Pla
n is
add
ed in
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
11 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 11 of 46
244
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m12
Def
ined
ben
efit
and
defin
ed c
ontr
ibut
ion
sum
mar
y
Th
e fo
llow
ing
tabl
e ou
tline
s th
e N
ew Y
ork
Uni
on’s
pla
n de
sign
New
Yor
k U
nion
Def
ined
Ben
efit
Pla
nB
asic
For
mul
a4%
to 8
% b
ased
on
year
s of
se
rvic
e
Pla
n Ty
peC
ash
Bal
ance
Pla
nE
arly
Ret
irem
ent S
ubsi
dyN
/ALu
mp
Sum
Yes
, at a
ny a
geO
ther
Inte
rest
cre
ditin
g is
bas
ed o
n th
e th
ird ti
er P
PA
seg
men
t rat
e fo
r th
e m
onth
of S
epte
mbe
r
Def
ined
Con
trib
utio
n P
lan
Em
ploy
er M
atch
50%
on
up to
6%
Pro
fit S
harin
gN
/AO
ther
6% a
uto
enro
ll, 1
00%
ves
ting
imm
edia
tely
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
12 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 12 of 46
245
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m13
Def
ined
ben
efit
scor
e an
d ra
nk
Def
ined
Ben
efit
Sco
re a
nd R
ank
Sco
reR
ank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
112.
212
/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
112.
212
/22
Th
e N
ew Y
ork
Uni
on’s
def
ined
ben
efit
plan
is m
ore
gene
rous
than
the
aver
age
of it
s pe
er
grou
p
Four
com
pani
es d
o no
t offe
r a d
efin
ed b
enef
it pl
an fo
r the
ir un
ion
popu
latio
ns
Th
e N
ew Y
ork
Uni
on’s
def
ined
ben
efit
plan
is ra
nked
bel
ow th
e av
erag
e of
thos
e co
mpa
nies
that
pr
ovid
e de
fined
ben
efit
plan
s fo
r the
ir un
ion
popu
latio
ns
Th
e pl
ans
offe
red
vary
in d
esig
n; n
one
of th
e pl
ans
requ
ire e
mpl
oyee
con
tribu
tions
S
ix c
ompa
nies
offe
r a tr
aditi
onal
pla
n, b
ased
on
final
or c
aree
r ave
rage
pay
Te
n co
mpa
nies
offe
r a h
ybrid
pla
n de
sign
(cas
h ba
lanc
e or
pen
sion
equ
ity p
lan)
O
ne c
ompa
ny o
ffers
a c
hoic
e to
em
ploy
ees
betw
een
a tra
ditio
nal a
nd a
hyb
rid p
lan
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
13 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 13 of 46
246
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m14
Def
ined
ben
efit
Th
e ch
arts
bel
ow fu
rther
illu
stra
te N
ew Y
ork
Uni
on’s
rela
tive
defin
ed b
enef
it pl
an v
alue
rank
ings
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
14 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 14 of 46
247
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m15
Def
ined
con
trib
utio
n ex
clud
ing
stoc
k pu
rcha
se p
lan
scor
e an
d ra
nk
A
ll of
the
com
petit
or re
tirem
ent p
rogr
ams
incl
ude
a de
fined
con
tribu
tion
plan
M
ost i
nclu
de o
nly
an e
mpl
oyer
sav
ings
pla
n m
atch
ing
cont
ribut
ion,
but
the
top
four
co
mpa
nies
und
er b
oth
empl
oyer
and
tota
l val
ue o
ffer p
lans
that
incl
ude
prof
it sh
arin
g
The
New
Yor
k U
nion
pla
n pr
ovid
es a
max
imum
of a
3%
em
ploy
er m
atch
ing
cont
ribut
ion
(50%
on
6%),
whi
ch ra
nks
it be
low
the
com
petit
or g
roup
ave
rage
for
empl
oyer
val
ue
N
ine
com
petit
ors
also
incl
ude
a se
para
te s
tock
pur
chas
e pl
an; f
our o
f the
se
com
pani
es d
o no
t hav
e a
disc
ount
Fi
fteen
com
pani
es, i
n ad
ditio
n to
Nat
iona
l Grid
, gra
nt im
med
iate
ves
ting
of
empl
oyer
con
tribu
tions
; 11,
in a
dditi
on to
Nat
iona
l Grid
, pro
vide
for a
uto-
enro
llmen
t
Defin
ed C
ontr
ibut
ion
Scor
e an
d Ra
nkSc
ore
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
51.3
19/2
2
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
79.3
16/2
2
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
15 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 15 of 46
248
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m
Def
ined
con
trib
utio
n ex
clud
ing
stoc
k pu
rcha
se p
lan
16
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
16 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 16 of 46
249
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m17
Def
ined
ben
efit
and
defin
ed c
ontr
ibut
ion
scor
e an
d ra
nk –
excl
udin
g st
ock
purc
hase
S
even
teen
pee
r com
pani
es o
ffer b
oth
a de
fined
ben
efit
and
a de
fined
co
ntrib
utio
n pl
an to
thei
r uni
on p
opul
atio
ns
Th
e N
ew Y
ork
Uni
on ra
nks
belo
w a
vera
ge w
hen
cons
ider
ing
the
empl
oyer
va
lue
of re
tirem
ent b
enef
its
Its lo
wer
em
ploy
er p
lan
valu
e in
dica
tes
high
er-th
an-a
vera
ge e
mpl
oyee
con
tribu
tions
Def
ined
Ben
efit
and
Cont
ribu
tion
Scor
e an
d R
ank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
78.9
19/2
2
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
87.7
17/2
2
Scor
eRa
nk
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
17 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 17 of 46
250
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m18
Def
ined
ben
efit
and
defin
ed c
ontr
ibut
ion
excl
udin
g st
ock
purc
hase
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
18 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 18 of 46
251
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m19
Post
-ret
irem
ent m
edic
al s
umm
ary
New
Yor
k Un
ion
Pre-
65Ty
pe o
f Pla
nP
OS
Pla
n D
esig
nS
ame
as A
ctive
Par
ticip
atio
n R
equi
rem
ents
Age
61
& 1
0 ye
ars
of s
ervic
e or
A
ge 6
0 &
age
+ s
ervic
e =
85D
efin
ed D
olla
r Ben
efit
Non
e
Post
-65
Type
of P
lan
PO
SP
artic
ipat
ion
Req
uire
men
tsA
ge+s
ervic
e =
85 o
r 10
YO
SP
lan
Des
ign
Sam
e as
Act
iveD
educ
tible
Per
son:
non
e; F
amily
Max
: non
eO
ut-o
f-poc
ket m
axim
um (i
nclu
des
dedu
ctib
le)
Per
son:
non
e; F
amily
Max
: non
eP
resc
riptio
n D
rugs
(ret
ail)
Gen
eric
$5
Bra
nd$1
5 C
oord
inat
ion
with
Med
icar
eM
edic
are
Par
t 'A
'B
enef
it re
duce
d by
Med
icar
e B
enef
it
Med
icar
e P
art '
B'
Med
icar
e P
art '
B' P
rem
ium
Non
eD
efin
ed d
olla
r Ben
efit
Ret
iree:
$54
x s
ervic
e;R
etire
e +
Spo
use:
$10
8 x
serv
ice
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
19 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 19 of 46
252
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m20
Post
-ret
irem
ent m
edic
al s
core
and
rank
Pos
t-ret
irem
ent M
edic
al S
core
and
Ran
kSc
ore
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
33.0
17/2
2
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
66.1
17/2
2
N
ew Y
ork
Uni
on’s
rela
tive
low
pos
t-ret
irem
ent m
edic
al s
core
s ar
e dr
iven
:
Mor
e re
stric
tive-
than
ave
rage
age
/ser
vice
par
ticip
atio
n re
quire
men
t
C
aps
(def
ined
dol
lar b
enef
it) o
n em
ploy
er c
ontri
butio
ns fo
r pos
t-65
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
20 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 20 of 46
253
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m21
Post
-ret
irem
ent m
edic
al
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
21 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 21 of 46
254
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m22
Post
-ret
irem
ent d
eath
P
ost-r
etire
men
t life
insu
ranc
e an
d A
D&
D b
enef
its a
re n
ot o
ffere
d to
the
New
Yor
k U
nion
pop
ulat
ion
Fo
ur c
ompa
nies
do
not o
ffer p
ost-r
etire
men
t dea
th b
enef
its
Tw
o co
mpa
rato
r com
pani
es o
ffer r
etire
e-pa
y-al
l cov
erag
e
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
22 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 22 of 46
255
Act
ive
Ben
efits
tow
ersw
atso
n.co
m23
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
V:\N
atio
nal G
rid U
SA
Inc
-111
574\
12\H
GB
\Ben
val\2
012
BE
NV
AL
Uni
on B
enef
its -
NY
Uni
on.p
pt
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
23 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 23 of 46
256
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m24
Act
ive
med
ical
del
iver
y m
odel
s
Fo
r pur
pose
s of
the
BE
NV
AL,
we
eval
uate
d on
ly th
e op
tion
with
hig
hest
en
rollm
ent
M
ost N
ew Y
ork
Uni
on e
mpl
oyee
s ar
e en
rolle
d in
a P
OS
opt
ion
18
of t
he 2
1 pe
er c
ompa
nies
offe
r a p
lan
with
out
-of-n
etw
ork
cove
rage
14
trad
ition
al P
PO
s; tw
o P
OS
pla
ns
One
com
pany
offe
rs a
con
sum
er-d
riven
hea
lth p
lan
O
ne p
lan
incl
udes
a ti
ered
net
wor
k
Th
e re
mai
ning
thre
e pe
er c
ompa
nies
offe
r an
HM
O o
r EP
O
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
24 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 24 of 46
257
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m25
Act
ive
med
ical
ben
efits
com
paris
onR
ange
Ave
rage
Mod
eIn
-Net
wor
kA
nnua
l Ded
uctib
le -
Per
Per
son
$0$1
20 -
$180
0$4
47$2
00A
nnua
l Ded
uctib
le -
Fam
ily M
axim
um$0
$320
- $3
600
$925
$400
Ann
ual O
OP
Max
- P
er P
erso
n (In
clud
es D
ed)
$0$2
00 -
$360
0$2
,051
$500
Ann
ual O
OP
Max
- Fa
mily
(Inc
lude
s D
ed)
$0$2
25 -
$720
0$4
,101
$1,0
00H
ospi
tal R
oom
and
Boa
rd -
In-N
etw
ork
100%
80%
-100
%93
%10
0%E
mer
genc
y R
oom
$35/
visit
80%
-100
%95
%10
0%P
hysi
cian
Exp
ense
s - I
npat
ient
Ser
vices
100%
80%
-100
%93
%10
0%O
ffice
Vis
its -
Prim
ary
$10/
visit
80%
-100
%97
%10
0%O
ffice
Vis
its -
Spe
cial
ist
$15/
visit
80%
-100
%97
%10
0%P
reve
ntat
ive C
are
$10/
visit
(ove
r age
19)
N/A
100%
100%
Pre
scrip
tion
Dru
gs -
Ret
ail -
Gen
eric
- C
oins
uran
ce80
%80
%-1
00%
96%
100%
Pre
scrip
tion
Dru
gs -
Ret
ail -
Gen
eric
- C
opay
$5 m
in; $
15 m
ax$5
- $2
0$1
0.08
$10.
00P
resc
riptio
n D
rugs
- R
etai
l - B
rand
- Fo
rmul
ary
- Coi
nsur
ance
80%
75%
-100
%92
%10
0%P
resc
riptio
n D
rugs
- R
etai
l - B
rand
- Fo
rmul
ary
- Cop
ay$5
min
; $15
max
$10
- $60
$26.
06$2
0.00
Pre
scrip
tion
Dru
gs -
Ret
ail -
Bra
nd -
Non
-For
mul
ary
- Coi
nsur
ance
80%
50%
-100
%85
%10
0%P
resc
riptio
n D
rugs
- R
etai
l - B
rand
- N
on-F
orm
ular
y - C
opay
$5 m
in; $
15 m
ax$1
5 - $
67.5
0$3
8.13
$35.
00M
enta
l Hea
lth -
Out
patie
nt -
INN
- C
oins
uran
ce10
0%50
%-1
00%
93%
100%
Men
tal H
ealth
- O
utpa
tient
- IN
N -
Cop
ay$1
0/vis
it$1
0 - $
40$2
1.15
$15.
00M
onth
ly E
mpl
oyee
Con
tribu
tions
- E
mpl
oyee
Onl
y$1
00.5
5$0
- $1
49$8
3.39
N/A
Mon
thly
Em
ploy
ee C
ontri
butio
ns -
Fam
ily$2
86.5
8$0
- $4
39.7
3$2
74.8
5N
/AO
ut-o
f-Net
wor
kA
nnua
l Ded
uctib
le -
Per
Per
son
$250
$200
- $3
600
$581
.94
$200
.00
Ann
ual D
educ
tible
- Fa
mily
Max
imum
$500
$225
- $7
200
$1,3
52.1
9$4
00.0
0A
nnua
l OO
P M
ax -
Per
Per
son
(Incl
udes
Ded
)$1
,250
$100
0 - $
1320
0$3
,753
.33
$3,5
00.0
0A
nnua
l OO
P M
ax -
Fam
ily (I
nclu
des
Ded
)$2
,500
$200
0 - $
2640
0$7
,800
.59
$6,0
00.0
0
New
Yor
k Un
ion
Com
para
tor
Gro
up
N
ew Y
ork
Uni
on’s
pla
n do
es n
ot in
clud
e an
in-n
etw
ork
dedu
ctib
le, w
hich
is m
ore
gene
rous
than
the
aver
age
peer
pla
n.
Add
ition
ally
, hos
pita
l cov
erag
e is
100
%, a
lso
abov
e av
erag
e, a
nd m
embe
r cos
t-sha
re fo
r ER
vis
its is
a lo
w c
opay
men
t of
$35
A
lthou
gh N
ew Y
ork
Uni
on’s
Rx
cove
rage
is 8
0%, m
embe
r cos
t-sha
re is
max
ed a
t $15
per
reta
il sc
ript,
whi
ch is
mor
e ge
nero
us c
over
age
than
the
aver
age
for b
rand
dru
gs
E
mpl
oyee
con
tribu
tions
are
hig
her t
han
aver
age
in te
rms
of d
olla
r am
ount
(but
not
nec
essa
rily
in te
rms
of %
of
prem
ium
/pre
miu
m e
quiv
alen
t rat
es)
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
25 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 25 of 46
258
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m26
Act
ive
med
ical
ben
efits
sco
re a
nd ra
nk
Th
e fo
llow
ing
tabl
e su
mm
ariz
es N
atio
nal G
rid’s
New
Yor
k U
nion
’s c
ompe
titiv
e po
sitio
ning
rela
tive
to it
s pe
er g
roup
with
resp
ect t
o ac
tive
med
ical
ben
efits
N
atio
nal G
rid’s
New
Yor
k U
nion
is ra
nked
7th
and
5th ,
resp
ectiv
ely,
in te
rms
of
empl
oyer
and
tota
l val
ue
Activ
e M
edic
al S
core
and
Ran
kS
core
Ran
kEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid N
ew Y
ork
Uni
on10
8.5
7/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
108.
65/
22
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
26 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 26 of 46
259
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m27
Act
ive
med
ical
ben
efits
Th
e to
p th
ree
com
para
tor c
ompa
nies
bas
ed o
n em
ploy
er v
alue
requ
ire n
o or
m
inim
al e
mpl
oyee
con
tribu
tions
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
27 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 27 of 46
260
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m28
Act
ive
dent
al b
enef
its c
ompa
rison
Ran
geA
vera
geM
ode
In-N
etw
ork
Ann
ual D
educ
tible
- P
er P
erso
n$5
0$2
5-$1
75$5
6$5
0A
nnua
l Ded
uctib
le -
Fam
ily$1
50$0
-$15
0$9
8$7
5A
nnua
l Max
imum
Pre
vent
ive &
Bas
ic:
$1,5
00/p
erso
n (e
xclu
des
Orth
odon
tia);
Maj
or: $
2,00
0/pe
rson
(e
xclu
des
Orth
odon
tia)
$100
0-$2
500
$1,6
88$1
,500
Pre
vent
ive/T
ype
I (C
lean
ings
)10
0%85
%-1
00%
99%
100%
Bas
ic/T
ype
II (F
illin
gs)
80%
50%
-100
%79
%80
%M
ajor
/Typ
e III
(Cro
wns
)60
%50
%-8
5%60
%50
%O
rthod
ontia
- C
over
age
100%
50%
-100
%61
%50
%O
rthod
ontia
- M
axim
um$1
,800
life
time
$100
0-$2
500
$1,7
72$2
,000
Mon
thly
Em
ploy
ee C
ontri
butio
ns -
Em
ploy
ee O
nly
$7.5
6$4
-$27
.58
$11
$9M
onth
ly E
mpl
oyee
Con
tribu
tions
- Fa
mily
$21.
53$1
6-$7
9.52
$35
$44
Out
-of-N
etw
ork*
Ann
ual D
educ
tible
- O
ut-O
f-Net
wor
k - P
er P
erso
nN
/A$2
5-$3
00$9
6N
o co
vera
geA
nnua
l Ded
uctib
le -
Out
-Of-N
etw
ork
- Fam
ilyN
/A$5
0-$2
00$1
25N
o co
vera
geA
nnua
l Max
imum
- O
ut-O
f-Net
wor
kN
/A$7
50-$
2000
$1,6
00N
o co
vera
ge*R
ange
s an
d av
erag
es fo
r out
-of-n
etw
ork
prov
isio
ns re
flect
thos
e fo
r pla
ns w
ith o
ut-o
f-net
wor
k co
vera
ge
New
Yor
k U
nion
Com
para
tor G
roup
Th
e N
ew Y
ork
Uni
on’s
den
tal p
lan
is g
ener
ally
in li
ne w
ith c
ompa
rativ
e no
rms
with
resp
ect t
o de
duct
ible
s an
d pr
even
tive
and
basi
c co
vera
ge. I
t is
mor
e ge
nero
us in
the
follo
win
g ar
ea:
N
ew Y
ork
Uni
on’s
pla
n co
vers
Orth
o at
100
%; t
he p
eer a
vera
ge is
61%
N
ew Y
ork
Uni
on d
enta
l fea
ture
s a
sepa
rate
ann
ual b
enef
it m
axim
um fo
r Typ
e I a
nd T
ype
II se
rvic
es
($1,
500
per p
erso
n) v
s. T
ype
III s
ervi
ces
($2,
000
per p
erso
n)
Em
ploy
ee c
ontri
butio
ns a
re lo
wer
than
ave
rage
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
28 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 28 of 46
261
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m29
Act
ive
dent
al b
enef
its s
core
and
rank
N
ew Y
ork
Uni
on ra
nks
5th
in te
rms
of e
mpl
oyer
val
ue o
f act
ive
dent
al b
enef
its
The
decr
ease
from
em
ploy
er v
alue
of 1
18.8
to to
tal v
alue
of 1
07.4
is d
ue to
lo
wer
-than
-ave
rage
em
ploy
ee c
ontri
butio
ns
Dent
al S
core
and
Ran
kSc
ore
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
118.
85/
22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
107.
45/
22
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
29 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 29 of 46
262
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m30
Act
ive
dent
al b
enef
its
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
30 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 30 of 46
263
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m31
Life
insu
ranc
e/A
D&
D c
ompa
rison
Th
e ta
ble
abov
e su
mm
ariz
es th
e N
ew Y
ork
Uni
on li
fe in
sura
nce/
AD
&D
pla
ns in
com
paris
on to
thos
e of
pe
er c
ompa
nies
. Ave
rage
s ill
ustra
ted
are
for t
hose
pla
ns w
ith fl
at-d
olla
r ben
efits
N
ew Y
ork
Uni
on’s
dea
th b
enef
its a
re m
ore
gene
rous
with
resp
ect t
o th
e fo
llow
ing:
B
asic
life
cov
erag
e (2
x pa
y vs
. 1x
pay
for m
ost p
lans
) and
max
imum
($62
5,00
0 vs
. an
aver
age
of le
ss th
an
$600
,000
)
S
uppl
emen
tal c
over
age
(5x
pay;
7 c
ompa
nies
do
not o
ffer s
uppl
emen
tal e
mpl
oyee
life
cov
erag
e)
M
axim
um b
enef
it op
tions
for s
pous
es a
nd c
hild
ren;
how
ever
, are
low
er th
an a
vera
ge
New
Yor
k U
nion
opt
ions
for s
pous
al c
over
age
are
$25,
000
or $
50,0
00; o
ptio
ns fo
r chi
ld c
over
age
are
$2,5
00,
$4,0
00 o
r $10
,000
Rang
eAv
erag
eM
ode
Basi
cB
asic
Ben
efit
Am
ount
2.5
x pa
y$1
0,00
0 to
4 x
pay
$23,
333
1 x
pay
Ben
efit
Max
- B
asic
$625
,000
$10,
000
to u
nlim
ited
$590
,714
$50,
000;
$1,
000,
000
Supp
lem
enta
lH
ighe
st B
enef
it Le
vel
5 x
pay
Non
e to
8 x
pay
N/A
No
cove
rage
Depe
nden
tS
pous
e (h
ighe
st b
enef
it le
vel)
$50,
000
$10,
000
to 6
x p
ay$1
29,2
86
$100
,000
C
hild
(hig
hest
ben
efit
leve
l)$1
0,00
0$2
,500
to $
50,0
00$1
6,00
0 $1
0,00
0 AD
&D
Par
ticip
atio
n R
equi
rem
ents
Non
e0
to 3
mon
ths
0.3
mon
ths
0 m
onth
sM
onth
ly E
mpl
oyee
Con
tribu
tions
Non
e$0
$0
B
enef
it A
mou
nt1
x pa
y +
$5,0
00$2
0,00
0 to
4 x
pay
$42,
500
$50,
000
Ben
efit
Max
imum
$25,
000
$20,
000
to U
nlim
ited
$741
,429
$1
,500
,000
New
Yor
k U
nion
Com
para
tor G
roup
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
31 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 31 of 46
264
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m32
Life
insu
ranc
e/A
D&
D s
core
and
rank
Life
Insu
ranc
e/A
D&D
- Act
ive
Scor
e an
d Ra
nkS
core
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
170.
03/
22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
131.
57/
22
N
ew Y
ork
Uni
on ra
nks
high
ly a
mon
g its
pee
rs in
term
s of
bot
h em
ploy
er v
alue
an
d to
tal v
alue
of l
ife in
sura
nce
and
AD
&D
ben
efits
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
32 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 32 of 46
265
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m33
Life
insu
ranc
e an
d A
D&
D b
enef
it
Tw
o co
mpe
titor
s ra
nk a
bove
New
Yor
k U
nion
in te
rms
of b
oth
empl
oyer
and
to
tal p
lan
valu
e du
e to
mor
e ge
nero
us A
D&
D c
over
age
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
33 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 33 of 46
266
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m34
Shor
t-ter
m d
isab
ility
com
paris
on
Th
e ta
ble
abov
e co
mpa
res
New
Yor
k U
nion
’s s
hort
term
dis
abilit
y pr
ogra
m w
ith th
ose
of
com
petit
or c
ompa
nies
Tw
elve
com
petit
ors
offe
r sic
k le
ave
(form
al o
r inf
orm
al).
Sic
k da
ys fo
r tw
o co
mpa
nies
are
in
clud
ed in
PTO
pro
gram
s
B
enef
it le
vels
and
dur
atio
n fo
r com
petit
ors’
prim
ary
sala
ry c
ontin
uanc
e pl
ans
are
prov
ided
. E
leve
n co
mpa
nies
offe
r sec
ond
tier s
alar
y co
ntin
uanc
e; b
enef
its ra
nge
from
50%
to 9
0%
Ran
geA
vera
geM
ode
Sic
k Le
ave
Com
men
cem
ent
1st d
ay o
f dia
bilit
y1s
t day
of d
isab
ility
Sic
k Pa
y @
100
% (N
umbe
r of
Wee
ks ):
<1 Y
ear o
f Ser
vice
11-
31.
51
1 Y
ears
of S
ervic
e1
1-3
1.6
25
Yea
rs o
f Ser
vice
51-
62.
41
10 Y
ears
of S
ervic
e10
1-26
4.1
115
Yea
rs o
f Ser
vice
151-
264.
11
20 Y
ears
of S
ervic
e20
1-26
4.1
1
Sal
ary
Con
tinua
nce
% o
f Pay
60%
43%
-100
%90
%10
0%D
urat
ion
(Num
ber o
f Wee
ks):
<1 Y
ear o
f Ser
vice
260-
5212
.91
1 Y
ears
of S
ervic
e26
0-52
14.4
265
Yea
rs o
f Ser
vice
261-
6522
.626
10 Y
ears
of S
ervic
e26
1-65
24.7
2615
Yea
rs o
f Ser
vice
261-
6526
.826
20 Y
ears
of S
ervic
e26
1-65
27.5
2625
Yea
rs o
f Ser
vice
261-
6528
.126
Com
para
tor G
roup
New
Yor
k Un
ion
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
34 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 34 of 46
267
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m35
Shor
t-ter
m d
isab
ility
sco
re a
nd ra
nk
Shor
t Ter
m D
isab
ility
Sco
re a
nd R
ank
Sco
reR
ank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
104.
212
/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
98.4
15/2
2
Th
e em
ploy
er v
alue
of N
ew Y
ork
Uni
on’s
STD
pla
n is
abo
ve a
vera
ge in
sco
re
but a
t ave
rage
in ra
nk
O
vera
ll, th
ere
is li
ttle
diffe
rent
iatio
n am
ong
the
sick
pla
ns o
f all
com
pani
es in
the
peer
gro
up
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
35 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 35 of 46
268
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m36
Shor
t-ter
m d
isab
ility
Th
ree
com
para
tor c
ompa
nies
offe
r con
tribu
tory
cov
erag
e
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
36 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 36 of 46
269
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m37
Long
-term
dis
abili
ty c
ompa
rison Ra
nge
Aver
age
Mod
eD
efin
ition
of D
isab
ility
N/A
N/A
own
occ
first
24
mon
ths;
any
occ
af
ter 2
4 m
onth
s
Cov
ered
Pay
N/A
N/A
Bas
e S
alar
y
Com
men
cem
ent
3-12
mon
ths
6 m
onth
s6
mon
ths
Ben
efit
- Am
ount
50%
-70%
61%
60%
Ben
efit
- Offs
ets
N/A
N/A
SS
Prim
ary
Max
imum
Ben
efit
(Afte
r Offs
ets)
$3,0
00-U
nlim
ited
$8,9
81
Unl
imite
d
No
com
pany
sp
onso
red
LTD
pla
n.
Dis
able
d em
ploy
ees
mee
ting
elig
ibili
ty
requ
irem
ent r
ecei
ve
bene
fits
from
a
com
pany
pai
d di
sabi
lity
retir
emen
t pl
an a
nd p
ensi
on
plan
.
Com
para
tor G
roup
New
Yor
k U
nion
Tw
o co
mpa
nies
, in
addi
tion
to th
e N
ew Y
ork
Uni
on, d
o no
t pro
vide
long
-term
di
sabi
lity
cove
rage
Th
e av
erag
e m
axim
um b
enef
it pr
ovid
ed re
flect
s pl
ans
with
out u
nlim
ited
cove
rage
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
37 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 37 of 46
270
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m38
Long
-term
dis
abili
ty b
enef
it
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
38 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 38 of 46
271
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m39
Shor
t-ter
m d
isab
ility
and
long
-term
dis
abili
ty s
core
and
ra
nk
Shor
t Ter
m a
nd L
ong
Term
Dis
abili
ty S
core
and
Ran
kSc
ore
Rank
Empl
oyer
Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
86.9
18/2
2
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
80.4
22/2
2
Th
e ta
ble
abov
e su
mm
ariz
es N
ew Y
ork
Uni
on’s
pos
ition
ing
with
resp
ect t
o th
e va
lues
of c
ombi
ned
shor
t-ter
m d
isab
ility
and
long
-term
dis
abili
ty c
over
age
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
39 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 39 of 46
272
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m40
Shor
t-ter
m d
isab
ility
and
long
-term
dis
abili
ty
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
40 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 40 of 46
273
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m41
Vaca
tion
and
holid
ay b
enef
its c
ompa
rison
Ran
geA
vera
geM
ode
Num
ber
of D
ays
Vac
atio
n A
t Hire
00-
157
10V
acat
ion
With
1 Y
ear o
f Ser
vice
105-
1510
10V
acat
ion
With
3 Y
ears
of S
ervic
e10
10-1
511
10V
acat
ion
With
7 Y
ears
of S
ervic
e15
13-1
615
15V
acat
ion
With
15
Yea
rs o
f Ser
vice
2019
-21
2020
Vac
atio
n W
ith 2
5 Y
ears
of S
ervic
e25
25-3
025
25V
acat
ion
With
35
Yea
rs o
f Ser
vice
3025
-30
2830
Em
ploy
er S
ched
uled
Hol
iday
s10
6-12
910
Em
ploy
ee S
ched
uled
Hol
iday
s3
0-4
21
New
Yor
k Un
ion
Com
para
tor G
roup
V
acat
ion
and
holid
ay b
enef
its d
o no
t var
y gr
eatly
am
ong
com
pani
es
New
Yor
k U
nion
ben
efits
are
slig
htly
abo
ve-a
vera
ge in
the
follo
win
g:
Vac
atio
n da
ys w
ith 3
5 ye
ars
of s
ervi
ce
Em
ploy
er-s
ched
uled
hol
iday
s
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
41 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 41 of 46
274
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m42
Vaca
tion
and
holid
ay s
core
and
rank
Th
e fo
llow
ing
tabl
e su
mm
ariz
es th
e N
ew Y
ork
Uni
on’s
pos
ition
ing
amon
g its
co
mpe
titor
s w
ith re
spec
t to
vaca
tion
and
holid
ay b
enef
its
Vac
atio
n an
d H
olid
ay S
core
and
Ran
kSc
ore
Ran
kEm
ploy
er V
alue
Lega
cy N
atio
nal G
rid N
ew Y
ork
Uni
on10
5.0
6/22
Tota
l Val
ueLe
gacy
Nat
iona
l Grid
New
Yor
k U
nion
105.
06/
22
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
42 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 42 of 46
275
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m43
Vaca
tion
and
holid
ay
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
43 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 43 of 46
276
Sum
mar
y
tow
ersw
atso
n.co
m44
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
V:\N
atio
nal G
rid U
SA
Inc
-111
574\
12\H
GB
\Ben
val\2
012
BE
NV
AL
Uni
on B
enef
its -
NY
Uni
on.p
pt
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
44 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 44 of 46
277
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m45
Scor
e su
mm
ary
A
s no
ted
thro
ugho
ut th
is d
ocum
ent,
ther
e ar
e so
me
bene
fit p
rovi
sion
s th
at a
re m
ore
gene
rous
th
an th
e co
mpe
titor
gro
up, a
nd o
ther
s th
at a
re le
ss g
ener
ous
than
the
com
petit
or g
roup
, whi
ch
ultim
atel
y co
ntrib
ute
to th
e ov
eral
l Ent
ire B
enef
it P
rogr
am s
core
Fr
om a
n em
ploy
er v
alue
per
spec
tive,
Nat
iona
l Grid
is in
line
with
the
mar
ket
Pro
visi
onEm
ploy
er V
alue
Tota
l Val
ueEn
tire
Bene
fit P
rogr
am97
.110
2.6
Def
ined
Ben
efit
112.
211
2.2
Def
ined
Con
tribu
tion
51.3
79.3
Def
ined
Ben
efit
+ D
efin
ed c
ontri
butio
n78
.987
.7
Pos
t-ret
irem
ent M
edic
al33
.066
.1
Pos
t-ret
irem
ent D
eath
0.0
0.0
Ret
irem
ent E
vent
s*75
.898
.3
Act
ive M
edic
al10
8.5
108.
6
Den
tal
112.
897
.5
Life
Insu
ranc
e/A
D&
D17
0.0
131.
5
STD
104.
298
.4
LTD
0.0
0.0
Vac
atio
n +
Hol
iday
105.
010
5.0
*Incl
udes
sto
ck p
urch
ase
plan
Lega
cy N
atio
nal G
rid N
ew Y
ork
Unio
n
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
45 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 45 of 46
278
© 2
012
Tow
ers
Wat
son.
All
right
s re
serv
ed. P
ropr
ieta
ry a
nd C
onfid
entia
l. Fo
r Tow
ers
Wat
son
and
Tow
ers
Wat
son
clie
nt u
se o
nly.
tow
ersw
atso
n.co
m46
BEN
VAL®
valu
atio
n m
etho
dolo
gy
R
elat
ive
valu
es a
re d
eter
min
ed b
ased
on
a re
pres
enta
tive
empl
oyee
gro
up a
nd
a st
anda
rdiz
ed s
et o
f val
uatio
n as
sum
ptio
ns/m
etho
ds; r
esul
ts a
re n
ot in
tend
ed
to re
pres
ent a
ctua
l pro
gram
cos
ts
P
lan
prov
isio
ns v
alue
d ar
e th
ose
appl
icab
le to
new
ly h
ired
sala
ried
empl
oyee
s;
bene
fits
avai
labl
e on
ly to
gra
ndfa
ther
ed g
roup
s of
em
ploy
ees
are
not r
efle
cted
S
tand
ard
popu
latio
n
Ave
rage
age
: 44
year
s
A
vera
ge s
ervi
ce: 1
3 ye
ars
A
vera
ge b
ase
sala
ry: $
76,1
21
A
vera
ge to
tal c
ompe
nsat
ion:
$84
,389
K
ey e
cono
mic
ass
umpt
ions
In
vest
men
t ret
urn
assu
mpt
ion/
disc
ount
rate
: 7%
S
alar
y in
crea
se ra
te: 4
%
Exh
ibit
__ (
HR
P-5
)S
ched
ule
2P
age
46 o
f 46
Exhibit__(HRP-5) Schedule 2 Page 46 of 46
279
E
xhibit __ (HR
P-6)
Testimony of The Human Resources Panel
Exhibit __ (HRP-6)
Expatriate Market Reference Points
280
National Grid USA Exhibit __ (HRP-6)Page 1 of 1
Assignee # Job Title2011 Market
Reference Points 1 Manager, Regional Operations - NE $125,1002 Estimating Centre of Excellence Engineer $103,3003 Director of US Tax Compliance $184,0004 Asset Strategy & Policy Engineer $119,6005 Project Manager $96,2006 VP Global Resourcing $240,8007 Vice President IS Gas Distribution $207,1008 SVP/Finance Director, Electricity Distribution & Gener $276,5009 US Director, Smart Metering $147,900
10 Vice President, US HR Business Partner $199,10011 Controller & Vice President Accounting Services $197,00012 HR Business Partner, Gas Distribution $110,90013 VP, Property $199,70014 Planning & Reporting Director $163,50015 Category Manager, IS & Telecom US $108,30016 Finance Manager ED&G and Finance $110,70017 Project Lead for the SAP Foundation $223,90018 Director of Category Management $144,60019 Director, US Talent & Organizational Effectiveness $137,90020 Head of US Corporate Audit $226,70021 SVP, US Financial Svcs $248,10022 Director, Decision Support $139,800
Expatriate Market Reference Points - 2011
281